First Data reports second Quarter 2016 financial results 

First Data Corporation (NYSE: FDC), a global leader in commerce-enabling technology and solutions, today reported financial results for the second quarter ended June 30, 2016. Consolidated revenue for the second quarter was $2.9 billion, up 2% versus the prior year period, or up 3% excluding currency impacts. Total segment revenue was $1.8 billion for the quarter, up 2% versus the prior year period, or up 4% excluding currency impacts.

For the second quarter 2016, net income attributable to First Data was $152 million, which compares to a net loss of $26 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 $323 million (or $0.35 per diluted share), up $179 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 second quarter 2016 was $746 million, up $44 million, or 6%, versus the prior year period, driven by revenue growth and expense management. Total segment EBITDA margin improved 170 basis points to 41.5% in the quarter.

“This quarter’s results were highlighted by net income growth, healthy margin expansion and strong cash flow generation. We saw impressive growth in Global Financial Solutions and in Latin America, and continued client momentum in the enterprise space,” said First Data Chairman and CEO Frank Bisignano. “We continue to implement and scale a number of strategic initiatives in our North American merchant business and remain confident these will drive visible improvement,” Bisignano added.

Segment Results

Global Business Solutions (GBS)

Second quarter 2016 GBS segment revenue was $1.0 billion, down 2% versus the prior year period, or flat on a constant currency basis. Within geographic regions, North America revenue of $815 million declined 2% versus the prior year period as 7% transaction growth was offset by a decline in blended yield. EMEA revenue was $140 million, up 1%, or up 2% on a constant currency basis, primarily driven by transaction growth offset by a lower blended yield. Latin America revenue was up 5%, or up 44% on a constant currency basis, driven by strong results in Brazil and Argentina.  APAC revenue was down 7%, or down 2% on a constant currency basis.

Second quarter 2016 GBS segment expenses were $589 million, down 2% versus the prior year period, benefiting from foreign exchange and expense reduction actions.

Second quarter 2016 GBS segment EBITDA was $448 million, down 1% versus the prior year period. Segment EBITDA margin improved 20 basis points to 43.2% in the quarter.

Global Financial Solutions (GFS)

Second quarter 2016 GFS segment revenue was $395 million, up 12% versus the prior year period, or up 14% on a constant currency basis. Within geographic regions, North America revenue of $236 million was up 14%, driven by new business and internal growth in credit and retail processing and output services. North America GFS card accounts on file grew 14% year over year. EMEA revenue was $108 million, up 5%, or up 8% on a constant currency basis. Latin America revenue was up 24%, or up 46% on a constant currency basis, driven by growth in Argentina.  APAC revenue was up 11%, or up 14% on a constant currency basis.

Second quarter 2016 GFS segment expenses were $235 million, up 3% versus the prior year period, as variable expense growth was partially offset by foreign exchange and expense reduction actions.

Second quarter 2016 GFS segment EBITDA was $160 million, up 29% versus the prior year period. Segment EBITDA margin improved 540 basis points to 40.5% in the quarter.

Network & Security Solutions (NSS)

Second quarter 2016 NSS segment revenue was $366 million, up 3% versus the prior year period. Revenue growth in the quarter was primarily driven by growth in security solutions and stored value. EFT network revenue was down modestly as growth in STAR network revenue was offset by a decline in debit/ATM processing revenues.

Second quarter 2016 NSS segment expenses were $200 million, flat versus the prior year period.

Second quarter 2016 NSS segment EBITDA was $166 million, up 6% versus the prior year period. Segment EBITDA margin improved 160 basis points to 45.4% in the quarter.

Cash Flow

In the second quarter 2016, cash flow from operations was $522 million, versus $555 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 $308 million in the current quarter, versus $316 million in the prior year period. The benefits from improved operating results, working capital, lower capital expenditures and a lower average cost of debt in the current period were offset by a $109 million increase in cash interest payments due to the change in timing of semi-annual coupon payments.

In the first six months of 2016, cash flow from operations was $908 million, up $455 million from $453 million in the first six months of 2015. In the first six months of 2016, free cash flow was $519 million, up $513 million from $6 million in the first six months of 2015. The increase in both measures was primarily driven by improved operating results and reduced cash interest payments.

Capital Structure

During the second quarter, First Data refinanced $1.4 billion of its 2018 term loans, extending the maturities to 2022. The company now has no material maturities until 2020.

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

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

Non-GAAP Measures

To supplement the company’s consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, the company uses non-GAAP measures of certain financial performance. These non-GAAP measures include total segment revenue, total segment expense, total segment EBITDA, total segment EBITDA margin, adjusted net income, adjusted net income per diluted share, free cash flow and net debt. The company has included non-GAAP measures because management believes that they help to facilitate comparisons of the company’s operating results between periods. The company believes the non-GAAP measures provide useful information to both management and users of our financial statements by excluding certain expenses, gains and losses that may not be indicative of its core operating results and business outlook. In disclosing year-over-year comparisons, the company has chosen to present non-GAAP measures because it believes that these measures provide users of our financial statements a consistent basis for reviewing the company’s performance across different periods.

These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company’s results of operations in conjunction with the corresponding GAAP measures.

Reconciliation to the most directly comparable GAAP measure of all non-GAAP measures can be found in the tables included in this press release.

The company excludes certain items and other adjustments from total segment revenue, total segment expense, total segment EBITDA, total segment EBITDA margin, adjusted net income and adjusted net income per diluted share. See reconciliations for a complete list of items excluded from non-GAAP measures.

The company uses free cash flow, a non-GAAP measure. Free cash flow is defined as cash flow used in/provided by operating activities less capital expenditures and distributions to minority interest. The company considers free cash flow to be a liquidity measure that provides useful information to management and users of our financial statements about the amount of cash generated by the business which can then be used to, among other things, reduce debt outstanding.

The company also uses net debt, a non-GAAP measure. Net debt is defined as total long-term borrowings plus short-term and current portion of long-term borrowings, at par value, excluding lines of credit used for settlement purposes, less cash and cash equivalents. The company believes that net debt provides additional insight on its level and management of leverage.

Certain revenue measures in this release are presented excluding the estimated impact of foreign currency changes (constant currency). To present this information, monthly results in the current period for entities reporting in currencies other than United States dollars are translated into United States dollars at the average exchange rates in effect during the corresponding month of the prior fiscal year, rather than the actual average exchange rates in effect during the current fiscal year. Once translated, each month in the period is added together to calculate the constant currency current period results. The company believes that revenue growth is a key indication of how First Data is progressing from period to period and the non-GAAP constant currency financial measure is useful to investors, lenders and other creditors because such information enables them to measure the impact of currency fluctuations on the company’s revenue from period to period.

Investor Conference Call

The company will host a conference call and webcast on Monday, August 1, 2016, at 8 a.m. ET to review the second quarter 2016 financial results.

To listen to the call, dial +1 (888) 317-6003 (U.S.) or +1 (412) 317-6061 (outside the U.S.); passcode 8244642, at least 10 minutes prior to the start of the call. The call will be webcast on the “Investor Relations” section of the First Data website at investor.firstdata.com where an accompanying slide presentation will also be available.

A replay of the call will be available through September 1, 2016, at +1 (877) 344-7529 (U.S.) or +1 (412) 317-0088 (outside the U.S.); passcode 10087896 and via webcast at investor.firstdata.com.

Please note: Other than the replay, First Data has not authorized, and disclaims responsibility for any recording, replay or distribution of any transcription of this call.

Source: First Data

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