In a busy day for First Data Corp., the leading payment processor on Wednesday reported a reduced quarterly loss and its best revenues since going private, and that it plans to buy digital gift-card services provider Gyft Inc.
Thanks to recent tech-company acquisitions and moves to improve its debt-laden balance sheet, including a $3.5 billion equity infusion, Atlanta-based First Data is now a “waterfront property,” chief executive Frank Bisignano told analysts during the company’s second-quarter earnings conference call. “We have continued revenue momentum and continued EBITDA (earnings before interest, taxes, depreciation and amortization) growth,” he said.
But when questioned, Bisignano pooh-poohed speculation that an initial public offering is imminent. Kohlberg Kravis Roberts & Co. bought First Data in 2007 for about $29 billion, and the company still has $22.6 billion in long-term borrowings. This year it expects to pay $1.72 billion in cash interest payments, although the recent equity deal will reduce future annual interest expense by about $440 million. “We’re not focused on an IPO, we’re focused on building a great company,” Bisignano said.
First Data typically posts an operating profit but a net loss after paying interest on its massive debt. Total revenues increased 5% to $2.84 billion from $2.71 billion in 2013’s second quarter—the company’s best revenue performance since the KKR buyout, according to Bisignano. Operating profit jumped 41% to $382.1 million, while the net loss fell 82% to $34.5 million from $189.1 million a year earlier.
Revenues in Merchant Solutions, First Data’s biggest segment, increased 2% to $945.2 million. International revenues increase 5% to $447.8 million. Transactions processed increased 4% but revenue per transaction slipped 1%.
The Financial Services segment, which provides card processing and debit card services for issuers, continued its recovery after a long period of lackluster performance and saw revenues grow 6% $357.4 million. In answer to an analyst’s question about a possible sale of that division, Bisignano said Financial Services is “critical” to First Data’s long-term success. “We’re in the business and we’re staying in the business,” he said.
Meanwhile, the pending Gyft acquisition continues First Data’s recent string of tech-company buyouts to broaden its products and services for merchants and issuers. Founded only in 2012, Redwood City, Calif.-based Gyft has a digital platform used by 200 retailers that enables consumers to buy, send, manage, and redeem gift cards using mobile devices. First Data sees Gyft as complementing its own prepaid card services for 300 national retailers.
“So once again you see us being able to operate with the Silicon Valley companies, partnering with them; we spent a lot of time with the owners there, and we feel very, very good about what we’ll be able to do with that platform,” Bisignano said.
Terms of the deal, which First Data expects to close next month following approval from Gyft’s shareholders, were not disclosed immediately but the purchase price and other details will be in a forthcoming quarterly report. Other recent First Data acquisitions include Clover Network Inc. and Perka Inc.