First Data Grows 5% In Its Q3, Showing Narrower Net Loss And Large Debt Costs

Following the bell this afternoon, First Data reported its third-quarter financial performance, its first quarterly report since it recently went public. The company’s debut was generally regarded as a modest disappointment. Shares of First Data only recently managed to cross back over their IPO price.

During the third quarter, First Data recorded revenue of $2.92 billion. That figure represents a 5 percent increase from its year-ago period. Off of that top line, First Data managed to lose $126 million. That figure, the company heralded in its release, is down by a full $109 million, on a year-over-year basis. The company’s operating profit was a far different $402 million to the good.

Following its financial news, shares of the processing company are largely flat. It was hard, before the company’s report, to track street sentiment. Given its relative youth as a public company — minutes, this time around, really — that isn’t too surprising. Expect its next earnings report to be framed against a more rigorous set of expectations.

The company is steeply leveraged. If you excise its staggering debt service payments, it would be a profitable corporation. However, its current capital structure precludes it from short-term profits.

Importantly, First Data saw a dramatic improvement in its free cash flow:

For the third quarter, the company generated $234 million in cash flow from operations, up $24 million versus the prior year period. The company finished the quarter with approximately $1.0 billion in unrestricted liquidity.

Alongside the improvement, First Data spent less on its debt than in its year-ago quarter. In its calendar third, the company paid $389 million in “interest expense,” and $108 million in “loss on debt extinguishment.” Those figures, in the comparable year-ago quarter, were $407 million and $271 million, respectively.

The company’s 46 percent decline in net loss in its recent quarter isn’t a fluke. First Data lost 44 percent less year-to-date, compared to the same 9 month period in 2014. So, losses are trending down.

The company wrapped the quarter with $368 million in cash. Oh, and about the IPO? The company is planning to use those funds to attack its debt. To wit:

In October 2015, First Data will have raised approximately $2.8 billion from issuing approximately 176,000,000 shares of Class A common stock at a price of $16 per share.

The company intends to use the net proceeds from the offering to redeem all $510 million aggregate principal amount of its 11.25% senior unsecured notes due 2021, approximately $1.8 billion aggregate principal amount of its 12.625% senior unsecured notes due 2021, and to pay applicable premiums and related fees and expenses, and for general corporate purposes.

Expanding revenues, declining losses, and IPO funds to lower debt load are all good things. However, the company’s mere 5 percent revenue expansion is hardly pulse-increasing.