Earnings

First Data 2Q Top Line Beats Street On SMB Momentum

In its latest earnings report, First Data topped Wall Street estimates on the top line. CEO Frank Bisignano pointed to momentum in the North American SMB customer base, while stating that acquisitions are tracking to plan and Clover is seeing, well, green fields ahead.

In a quarter that met earnings expectations on the bottom line but beat Wall Street on the top line, First Data showed broad momentum across several of the payment processor’s business lines, including its point-of-sale solution, Clover.

Adjusted earnings per share came in at $0.40, in line with estimates. The total top line grew by 3 percent year over year to $3 billion (and up 5 percent on an adjusted basis excluding currency and divestiture impacts), and on an adjusted basis $2.04 billion — $200 million better than Wall Street expected.

In remarks to analysts on the conference call on the earnings news, CEO Frank Bisignano stated that the merchant services and technology platform saw segment revenue growth spaced evenly across business segments on a year-over-year basis.

EBITDA grew faster than revenue, indicating successful cost control in the period.

Bisignano said that “we saw another quarter of healthy growth within our non-JV business and continued softness within our JV business as anticipated.” And within the much-watched small- to mid-sized business (SMB) base, he added, there was “steady improvement, underpinned by ongoing improvement in attrition rates and healthy new sign-up rates, particularly through the digital channel.”

Attrition rates have improved in the SMB direct business to the tune of 500 basis points year over year — better by 30 basis points sequentially — to stand at about the high 20 percent rate at present (measured by merchants).

Speaking on the acquisitions front, Frank Bisignano said that the acquisition of Acculynk closed during the quarter and has driven “immediate momentum in our e-comm business” and that First Data has sold the acquired firm’s debit solutions through several enterprise clients, among them Priceline, Google, Alipay, Western Union and Green Dot, as he noted on the earnings report call.

Additionally, the CardConnect acquisition was finalized after the end of the quarter, with growth likely to come through the combination of that new unit and Clover, added Bisignano.

International momentum also got a call-out during the discussion, with a credit processing deal closed in the quarter in the EMEA (Europe, the Middle East and Africa) region, tied to Ikano Bank and a furniture retailer’s private label card. In Latin America, the firm closed a merchant acquiring partnership with a large Brazilian financial institution, Sicredi.

Turning to individual segment performance, CFO Himanshu Patel said that the global business solutions (GBS) segment saw revenues of $1.1 billion, which was up 5 percent on an adjusted basis. Within that segment, North American revenues were up 1 percent, driven by the aforementioned mix that Bisignano pointed out. Transaction growth in North America was up 6 percent. Total backlog for the GBS segment stands at $200 million, management said on the call, likely to be spread out over two years.

Delving a bit into North America, Patel cited Clover as a platform showing notable growth. To date, the firm has shifted 350,000 units to the platform. “Annualized processing volume across all Clover form factors is now about $45 billion … up 75 percent year over year,” said Patel, projecting that “these stats should, in no uncertain terms, convey that Clover, which was barely a concept four years ago, is today one of the fastest-growing and scaled tablet-based point-of-sale systems in the United States.”

As Patel noted later in the call, international movement will be a hallmark of Clover amid present efforts and, in the near future, in the U.K., Ireland, Latin America and, eventually, Asia.

Other areas within the GBS segment showed relatively stronger growth, among them Latin America, up 60 percent in constant currency, and Patel said the latest quarter marked the eighth consecutive quarterly period that posted growth of more than 40 percent. India helped drive APAC (Asia-Pacific) growth, up 13 percent on an adjusted basis amid growing card acceptance, itself spurred by demonetization in that country.

Within the Global Financial Solutions results, segment revenue was up 4 percent to $402 million, with new business notable in the United Kingdom and, beyond that, in Latin America across Argentina and Columbia. In the United States, the total revenue derived here was off 1 percent to $233 million, where processing was up mid-single digits but was offset by slippage in card personalization revenue.

The company has “high confidence” in meeting its full-year guidance for 2017 and the medium term, said CEO Frank Bisignano. Revenue growth in constant currency (excluding the impacts of CardConnect) is slated to be between 3 percent to 5 percent, with EPS growth of about 15 percent over the period.

Bisignano said that, along with improvement in the JV business, “whether that turns around in one month or in two quarters,” improvement should be evident across all units.

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