First Data narrows Q1 net loss

Segment revenue, which modifies consolidated revenue for pass-through items and other impacts, was $1.7 billion for the quarter, up 2% versus the prior year period, or up 5% excluding currency impacts.

For the first quarter 2016, the net loss attributable to First Data was $56 million, which compares to a net loss of $112 million in the prior year period. The net loss in the current quarter includes the impact of $46 million of debt extinguishment charges and $52 million of IPO-triggered stock-based compensation expense. Adjusted net income,(1) which modifies net income for items such as debt extinguishment charges, stock-based compensation, amortization of acquisition intangibles, restructuring costs and other items, was $220 million (or $0.24 per diluted share), up $185 million versus the prior year period, driven by improved operating results and lower interest expense.

For the first quarter 2016, adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) was $636 million, up $73 million, or 13%, versus the prior year period, driven by revenue growth and expense management. Adjusted EBITDA margin improved 360 basis points to 37.6% in the quarter.

“Our results this quarter, with solid revenue growth, margin expansion and cash generation, were matched by rigorous expense management and a focus on winning new business,” said First Data Chairman and CEO Frank Bisignano. “While we are pleased to record another quarter of mid-single digit revenue growth, we are engaged on many levels to continually improve our franchise,” Bisignano added.

Segment Results

Global Business Solutions (GBS)

First quarter 2016 GBS segment revenue was $955 million, down 1% versus the prior year period, or up 2% on a constant currency basis. Within geographic regions, North America revenue of $737 million declined 2% (or 0% including merchant-related revenue within the Network & Security Solutions segment) versus the prior year period. North America GBS saw 7% transaction growth, offset by a decline in blended yield. EMEA revenue was $140 million, up 13%, or up 17% on a constant currency basis, primarily driven by strong transaction growth and a higher blended yield.

First quarter 2016 GBS adjusted expenses were $579 million, down 4% versus the prior year period, benefiting from foreign exchange and expense reduction actions.

First quarter 2016 GBS adjusted EBITDA was $376 million, up 4% versus the prior year period. Adjusted EBITDA margin improved 200 basis points to 39.4% in the quarter.

Global Financial Solutions (GFS)

First quarter 2016 GFS segment revenue was $386 million, up 8% versus the prior year period, or up 12% on a constant currency basis. Within geographic regions, North America revenue of $234 million was up 11%, driven by new business and internal growth in credit and retail processing, and in output services. North America GFS card accounts on file grew 13% year over year. EMEA revenue was $103 million, up 2%, or up 6% on a constant currency basis.

First quarter 2016 GFS adjusted expenses were $231 million, down 3% versus the prior year period, benefiting from foreign exchange and expense reduction actions.

First quarter 2016 GFS adjusted EBITDA was $155 million, up 30% versus the prior year period. Adjusted EBITDA margin improved 690 basis points to 40.2% in the quarter.

Network & Security Solutions (NSS)

First quarter 2016 NSS segment revenue was $352 million, up 5% versus the prior year period. Revenue growth in the quarter was primarily driven by growth in security solutions and stored value.

First quarter 2016 NSS adjusted expenses were $201 million, down 2% versus the prior year period.

First quarter 2016 NSS adjusted EBITDA was $151 million, up 16% versus the prior year period. Adjusted EBITDA margin improved 420 basis points to 42.9% in the quarter.

Cash Flow

In the first quarter 2016, cash flow from operations was $386 million, versus $(102) million in the prior year period. Free cash flow, which First Data defines as cash flow from operations less capital expenditures and distributions to minority interests, was $211 million in the current quarter, versus $(310) million in the prior year period. The increase in both measures was driven by improved operating results and a $375 million decline in cash interest payments.

Improvements to Capital Structure

Year to date, First Data refinanced $4.6 billion of the approximately $6 billion in 2018 term loans, extending these maturities into the next decade.

In March 2016, First Data issued $900 million of senior secured first lien notes with an interest rate of 5.0%, due in 2024. The proceeds of those notes were used to repay approximately $900 million of its senior secured term loans due in 2018 and to pay related fees and expenses.

Also, First Data extended the maturity of $3.7 billion of its outstanding U.S. dollar denominated term loans from March 2018 to March 2021. The transaction was announced in March and closed on April 13.

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