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First Data swings back into profit

07 November 2016  |  2330 views  |  0 Source: First Data

First Data Corporation (NYSE: FDC), a global leader in commerce-enabling technology and solutions, today reported financial results for the third quarter ended September 30, 2016. Consolidated revenue for the third quarter was $2.9 billion, up 1% versus the prior year period, or up 2% excluding currency impacts.

Total segment revenue was $1.8 billion for the quarter, up 1% versus the prior year period, or up 3% excluding currency impacts.

For the third quarter 2016, net income attributable to First Data was $132 million (or $0.14 per diluted share), which compares to a net loss of $126 million in the prior year period. 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 items, was $312 million (or $0.34 per diluted share), up $141 million versus the prior year period, driven by improved operating results and lower interest expense.

Total segment earnings before interest, taxes, depreciation, and amortization (total segment EBITDA) in the third quarter 2016 was $739 million, up 5% versus the prior year period, or up 8% excluding currency impacts, driven by revenue growth and expense management. Total segment EBITDA margin improved 150 basis points to 40.6% in the quarter.

“We are pleased to report another quarter of solid cash generation and debt reduction, healthy margin expansion and good earnings growth,” said First Data Chairman and CEO Frank Bisignano. “During the quarter we saw tangible improvements in our North America merchant business, continued success with enterprise clients and strong growth in non-U.S. revenue," Bisignano added.

Segment Results

Global Business Solutions(GBS)

Third quarter 2016 GBS segment revenue was $1.0 billion, up 1% versus the prior year period, or 3% on a constant currency basis. Within geographic regions, North America revenue of $819 million was up 1% versus the prior year period as 7% transaction growth was offset by a decline in blended yield. EMEA revenue was $137 million, up 2%, or up 8% on a constant currency basis, primarily driven by transaction growth, partly offset by lower blended yield. Latin America revenue was up 12%, or up 45% on a constant currency basis, driven by strong results in Brazil and Argentina. APAC revenue was down 2%, or down 6% on a constant currency basis, the decline attributable to the performance of the Australian ATM business.

Third quarter 2016 GBS segment expenses were $590 million, down 2% versus the prior year period, or flat excluding currency impacts, benefiting from expense reduction actions.

Third quarter 2016 GBS segment EBITDA was $455 million, up 6% versus the prior year period, or up 8% excluding currency impacts. Segment EBITDA margin improved 170 basis points to 43.5% in the quarter.

Global Financial Solutions(GFS)

Third quarter 2016 GFS segment revenue was $397 million, up 2% versus the prior year period, or up 5% on a constant currency basis. Within geographic regions, North America revenue of $236 million was up 2%, with growth in processing and print revenue partially offset by a decline in card personalization revenue. The second half of 2015 represented a particularly strong comparison for card personalization revenue, primarily due to the October 2015 EMV liability shift. North America GFS card accounts on file grew 4% year over year. EMEA revenue was $113 million, down 1%, or up 8% on a constant currency basis, primarily driven by new business and internal growth. Latin America revenue was up 4%, or up 28% on a constant currency basis, driven by growth in Argentina and Colombia. APAC revenue was up 11%, or up 9% on a constant currency basis.

Third quarter 2016 GFS segment expenses were $239 million, down 3% versus the prior year period, or up 1% excluding currency impacts.

Third quarter 2016 GFS segment EBITDA was $158 million, up 9% versus the prior year period, or up 13% excluding currency impacts. Segment EBITDA margin improved 270 basis points to 39.8% in the quarter.

Network & Security Solutions(NSS)

Third quarter 2016 NSS segment revenue was $378 million, up 1% versus the prior year period. Revenue growth in the quarter was primarily driven by growth in security solutions and modest growth in EFT network, partially offset by a decline in stored value revenue.

Third quarter 2016 NSS segment expenses were $212 million, flat versus the prior year period.

Third quarter 2016 NSS segment EBITDA was $166 million, up 2% versus the prior year period. Segment EBITDA margin improved 60 basis points to 43.9% in the quarter.

Cash Flow

In the third quarter 2016, cash flow from operations was $752 million, versus $234 million in the prior year period. The third quarter 2016 cash flow from operations includes a reclassification of $123 million (see footnote (a) on Selected Consolidated Cash Flow Data table for additional detail). Free cash flow, which First Data defines as cash flow from operations, less capital expenditures and distributions to minority interests and other, was $427 million in the current quarter, versus $(8) million in the prior year period. The third quarter 2016 free cash flow excludes the impact of the aforementioned reclassification.

In the first nine months of 2016, cash flow from operations was $1.7 billion, up $973 million from $687 million in the first nine months of 2015. The first nine months of 2016 cash flow from operations includes a reclassification of $123 million (see footnote (a) on Selected Consolidated Cash Flow Data table for additional detail). In the first nine months of 2016, free cash flow was $946 million, up $948 million from $(2) million in the first nine months of 2015. The increase in year-to-date free cash flow was primarily driven by a $571 million reduction in cash interest payments and $153 million growth in total segment EBITDA. The first nine months of 2016 free cash flow excludes the impact of the aforementioned reclassification.

Capital Structure

Total borrowings at September 30, 2016 were reduced to $18.9 billion, from $19.1 billion at June 30, 2016 and $19.6 billion at year end 2015. Net debt at September 30, 2016 was reduced to $18.5 billion, from $19.0 billion at June 30, 2016 and $19.3 billion at year end 2015.

On October 14, 2016, First Data refinanced approximately $4.5 billion of term loans due in 2021, which reduced the interest rate on these loans by 100 basis points from LIBOR plus 400 basis points to LIBOR plus 300 basis points, resulting in annualized cash interest savings of approximately $45 million.

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

Divestiture

On September 30, 2016, First Data sold its non-core Australian ATM business. The total sale price for the divested assets was AUD$55 million (approximately $42 million), and the net proceeds after closing adjustments were received in early October. The sale resulted in a book loss of $31 million, reported in Other income (expense) in the quarter. First Data is committed to retaining its presence in the Australian market via its core offerings. 

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