SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported):
(Exact Name of Registrant as Specified in Charter)
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(State or Other Jurisdiction
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(Commission
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(IRS Employer
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of Incorporation)
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File Number)
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Identification No.)
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(Address and Zip Code of Principal Executive Offices)
(614 ) 729-4000
(Registrant’s Telephone Number, including Area Code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following
provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading symbol
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Name of each exchange on which registered
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this
chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 2.02 Results of Operations and Financial Condition.
On October 29, 2020, Alliance Data Systems Corporation (the "Company") issued a press release regarding its
results of operations for the third quarter ended September 30, 2020. A copy of this press release is furnished as Exhibit 99.1.
On October 29, 2020, the Company issued a press release regarding its results of operations for the third quarter ended September 30, 2020. A
copy of this press release is furnished as Exhibit 99.1.
Attached as Exhibit 99.2 is a presentation to be given to investors and others by senior officers of the Company.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
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Exhibit No.
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Document Description
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Press Release dated October 29, 2020 announcing the results of operations for the third quarter ended September 30, 2020.
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Investor Presentation Materials.
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| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
Note: The
information contained in this report (including Exhibits 99.1 and 99.2) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall
it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such a filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
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Alliance Data Systems Corporation
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Date: October 29, 2020
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By:
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/s/ Joseph L. Motes III
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Joseph L. Motes III
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Executive Vice President, Chief
Administrative Officer, General
Counsel and Secretary
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Exhibit 99.1
Investor Relations: Brian Vereb (brian.vereb@alliancedata.com),
614-528-4516
Media Relations: Shelley Whiddon
(shelley.whiddon@alliancedata.com), 214-494-3811
Alliance Data Reports Third Quarter Results
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•
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Strong Financial Results Across Key Metrics
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•
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Continued Progress on Strategic Priorities
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•
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Investments in Initiatives to Drive Sustainable Long-Term Growth
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COLUMBUS, Ohio, October 29, 2020 – Alliance Data Systems
Corporation (NYSE: ADS), a leading provider of data-driven marketing, loyalty and payment solutions, today announced results for the third quarter ended September 30, 2020, including net income of $133 million or $2.79 per diluted share.
“Alliance Data executed effectively in the third quarter, posting strong sequential improvement across key financial metrics,” said Ralph Andretta, president and
chief executive officer of Alliance Data. “This positive financial performance, together with actions to strengthen our balance sheet, advance our technology, and enhance our digital capabilities and product set, underscores Alliance Data’s
commitment to sustainable, profitable long-term growth.
“Specifically, our third quarter financial results demonstrated a modest recovery in Card Services credit sales, which increased 28% sequentially, as credit
metrics remained resilient, reflecting strong payment trends across our cardmember base. Additionally, revenue from LoyaltyOne® improved from second quarter levels, reflecting better business conditions and improved AIR MILES® reward activity. At the same time, we continued to drive significant company-wide expense reductions from ongoing efficiency programs that have reduced our cost to serve and enabled additional investment in
areas of strategic priority.
“The Company made substantial progress executing on the strategic initiatives outlined during the second quarter earnings call. With the acquisition of Bread,
which is expected to close in the fourth quarter of 2020, we will expand our digital offering to include installment and buy now, pay later payment products. These capabilities will expand our addressable market, while providing additional valuable
cross-sell opportunities, as well as support our brand partners with new online product solutions. With these offerings, Alliance Data is uniquely positioned to provide a branded, full spectrum payment suite for our partners. Please refer to this
morning’s press release on the acquisition for more information.
“Given the growth in digital engagement, we continue to accelerate our digital innovation. With the combination of Bread and the launch of our Enhanced Digital
Suite, our robust payment solutions offerings will enable our brand partners to further capitalize on the rapid pace of e-commerce growth, driving incremental customer acquisition and spend. The Enhanced Digital Suite offering promotes payment
options early in the shopping experience, and provides our partners with improved digital marketing and payment tools.
Alliance Data Systems Corporation
October 29, 2020
“The recent announcement with Fiserv underscores our commitment to delivering value and service to our brand partners and their customers. As part of our broader
technology enhancement, this relationship will allow us to be more deeply integrated with our partners and seamlessly add new payment products, digital capabilities, and real-time analytics. We will reinvest the resulting reduction in our annual
capital spend into our businesses to drive further growth and digital innovation.
“In addition, the recent launch of our Comenity-branded general purpose cash-back credit card provides Alliance Data with an important new product to serve and
retain our cardmembers, capturing incremental spend.
“We remain cautiously optimistic on consumer spending and payment trends. Our brand partners are seeing improved sales, led by the acceleration of online
retail. Consumer payment rates have been strong, and credit metrics remain better than expected. That said, we remain disciplined in our risk management, maintaining our reserve for loan loss at over 13% of end of period receivables, in line with
the second quarter of 2020. We will continue making investments in our products and capabilities to provide even greater value to our partners, customers, collectors, and cardmembers and drive long-term stockholder value,” said Andretta.
CONSOLIDATED RESULTS
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SUMMARY
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Quarter Ended September 30,
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(in millions, except per share amounts)
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2020
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2019
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% Change
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Revenue
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$
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1,050
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$
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1,438
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(27
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)%
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Income from continuing operations before income taxes (“EBT”)
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$
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176
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$
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164
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7
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%
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Income from continuing operations
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$
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133
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$
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122
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10
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%
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Net income (loss)
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$
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133
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$
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(108
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)
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nm
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Income from continuing operations per diluted share (“EPS”)
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$
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2.79
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$
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2.41
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16
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%
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Net income (loss) per diluted share
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$
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2.79
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$
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(2.13
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)
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nm
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Diluted shares outstanding
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47.8
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50.4
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*******************************
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Supplemental Non-GAAP Metrics (a):
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Adjusted EBITDA
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$
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340
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$
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481
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(29
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)%
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Adjusted EBITDA, net of funding costs (“adjusted EBITDA, net”)
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$
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250
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$
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367
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(32
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)%
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Core earnings per diluted share (“core EPS”)
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$
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3.45
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$
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5.05
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(32
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)%
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Pre-provision, pre-tax earnings
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$
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384
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$
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462
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(17
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)%
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(a) See “Financial Measures” for a discussion of non-GAAP Financial Measures.
nm = not meaningful
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2
Alliance Data Systems Corporation
October 29, 2020
Due to the continuing impacts of COVID-19, consolidated revenue decreased 27% to $1,050 million, compared to the third quarter of 2019. EBT increased 7% to $176
million, while income from continuing operations increased 10% to $133 million and EPS increased 16% to $2.79, all compared to the third quarter of 2019. The third quarter of 2019 was negatively impacted by the expense related to the early
extinguishment of debt associated with the repayment of $2.4 billion in debt, and restructuring and other charges associated with cost saving initiatives implemented in 2019. Adjusted EBITDA, net decreased 32% to $250 million as compared to the
third quarter of 2019.
In September 2020, the Company completed a $500 million offering of senior notes, maturing in January 2026. Net proceeds from the offering were used to repay
$494 million of term loans under the Company’s credit agreement, which was amended to allow certain covenant flexibility over a specified period beginning in 2021, specifically to (a) increase the maximum total leverage ratio, (b) decrease the
minimum interest coverage ratio, and (c) increase the maximum permitted average delinquency ratio.
SEGMENT RESULTS
Card Services: Revenue decreased 27% to $866
million, compared to the third quarter of 2019, due primarily to the decline in average receivables, reflecting lower sales volumes, and in part from interest rate cuts earlier this year. EBT decreased 29% to $212 million, compared to the third
quarter of 2019, due to lower revenue, partly offset by a decline in operating expenses and a $90 million year-over-year decrease in the provision for loan loss. The net principal loss rate was 5.8% in the third quarter of 2020 and the delinquency
rate of 4.7% improved 120 basis points from the prior year period; both loss and delinquency rates benefitted from forbearance relief granted in connection with the pandemic.
Credit sales decreased 21% to $6.2 billion, compared to the third quarter of 2019, due to the continuing impacts of COVID-19. On a sequential basis, credit sales
increased 28% as consumer spending improved, while average receivables decreased 5%, primarily due to lower sales levels in 2020, due to the continuing impacts of COVID-19. On a sequential period end basis, credit card and loan receivables were down
approximately 1% versus June 30, 2020.
Related to funding, the Company also renewed its three conduit facilities with total commitments of $3.2 billion, extending the maturity to either April or
October 2022.
LoyaltyOne: Revenue decreased 25% to $185
million, compared to the third quarter of 2019, resulting from fewer short-term loyalty programs in market due to the impact of COVID-19, as well as the sale of Precima® in January 2020, which
accounted for $23 million of incremental revenue in last year’s third quarter. On a constant currency basis, revenue declined 27% to $179 million, compared to the third quarter of 2019, with BrandLoyalty revenue decreasing 24%, or $35 million, on a
constant currency basis, due to a decline in programs with retailer delays related to the impact of COVID-19. AIR MILES revenue decreased 32%, or $31 million, compared to the third quarter of 2019 on a constant currency basis, due primarily to the
sale of Precima, as well as lower service and redemption revenue. LoyaltyOne adjusted EBITDA, net decreased 31% to $40 million, primarily due to the decrease in revenue.
3
Alliance Data Systems Corporation
October 29, 2020
Issuance of AIR MILES reward miles decreased 8%, compared to the third quarter of 2019, reflecting a decline in
discretionary spending, including credit card spend and delays in promotions by Sponsors. AIR MILES reward miles redemptions decreased 36%, compared to the third quarter of 2019, reflecting the impact of the
pandemic on travel-related categories, offset in part by strength from merchandise redemptions. On a sequential basis, AIR MILES reward miles issued and redeemed improved 18% and 13%, respectively, reflecting better business conditions than second
quarter 2020.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as “believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or
other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward-looking statements. Examples of forward-looking statements include, but are not
limited to, statements we make regarding, and the guidance we give with respect to, our anticipated operating or financial results, initiation or completion of strategic initiatives, future dividend declarations, and future economic conditions,
including, but not limited to, fluctuation in currency exchange rates, market conditions and COVID-19 impacts related to relief measures for impacted borrowers and depositors, labor shortages due to quarantine, reduction in demand from clients,
supply chain disruption for our reward suppliers and disruptions in the airline or travel industries.
We believe that our expectations are based on reasonable assumptions. Forward-looking statements, however, are subject to a number of risks and uncertainties that
could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this release, and no assurances can be given that our expectations will prove to have been correct. These risks and
uncertainties include, but are not limited to, factors set forth in the Risk Factors section in our Annual Report on Form 10-K for the most recently ended fiscal year, which may be updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form
10-Q filed for periods subsequent to such Form 10-K. Our forward-looking statements speak only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward-looking statements, whether
as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.
4
Alliance Data Systems Corporation
October 29, 2020
Financial Measures
In addition to the results presented in accordance with generally accepted accounting principles, or GAAP, the Company may present financial measures that are
non-GAAP measures, such as constant currency financial measures, pre-provision pre-tax earnings, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, net of funding costs, core earnings and core earnings per diluted share (core EPS). Constant
currency excludes the impact of fluctuations in foreign exchange rates. The Company calculates constant currency by converting our current period local currency financial results using the prior period exchange rates. The Company uses adjusted EBITDA
and adjusted EBITDA, net as an integral part of internal reporting to measure the performance and operational strength of reportable segments and to evaluate the performance of senior management. Adjusted EBITDA eliminates the uneven effect across
all reportable segments of non-cash depreciation of tangible assets and amortization of intangible assets, including certain intangible assets that were recognized in business combinations, and the non-cash effect of stock compensation expense. In
addition, adjusted EBITDA eliminates the effect of the gain (loss) on the sale of a business, strategic transaction costs, asset impairments, restructuring and other charges, and the loss on the extinguishment of debt. Adjusted EBITDA, net is equal
to adjusted EBITDA less securitization funding costs and interest expense on deposits. Similarly, core earnings and core EPS eliminate non-cash or non-operating items, including, but not limited to, stock compensation expense, amortization of
purchased intangibles, non-cash interest, gain (loss) on the sale of a business, strategic transaction costs, asset impairments, restructuring and other charges, and the loss on the extinguishment of debt. The Company believes that these non-GAAP
financial measures, viewed in addition to and not in lieu of the Company’s reported GAAP results, provide useful information to investors regarding the Company’s performance and overall results of operations.
Reconciliation of Non-GAAP Financial Measures
Reconciliations to comparable GAAP financial measures are available in the accompanying schedules, which are posted as part of this earnings release in both the
News and Investors sections on the Company’s website (www.alliancedata.com). The events necessitating a non-GAAP adjustment are inherently unpredictable and may have
a material impact on the Company’s future results.
The financial measures presented are consistent with the Company’s historical financial reporting practices. Core earnings and core EPS represent performance
measures and are not intended to represent liquidity measures. The non-GAAP financial measures presented herein may not be comparable to similarly titled measures presented by other companies, and are not identical to corresponding measures used in
other various agreements or public filings.
5
Alliance Data Systems Corporation
October 29, 2020
Conference Call
Alliance Data will host a conference call on Thursday, October 29, 2020 at 8:30 a.m. (Eastern Time) to discuss the Company’s third quarter 2020 results. The
conference call will be available via the Internet at www.alliancedata.com. There will be several slides accompanying the webcast. Please go to the website at least 15 minutes prior to the call to register, download and install any necessary
software. The recorded webcast will also be available on the Company’s website.
If you are unable to participate in the conference call, a replay will be available. To access the replay, please dial (800) 585-8367 or (416) 624-4642 and enter
“9644767”. The replay will be available at approximately 11:59 a.m. (Eastern Time) on Thursday, November 12, 2020.
About Alliance Data
Alliance Data® (NYSE: ADS) is a leading provider of data-driven marketing, loyalty and payment solutions serving large, consumer-based industries. The
Company creates and deploys customized solutions that measurably change consumer behavior while driving business growth and profitability for some of today's most recognizable brands. Alliance Data helps its partners create and increase customer
loyalty across multiple touch points using traditional, digital, mobile and emerging technologies. A FORTUNE 500 and S&P MidCap 400 company headquartered in Columbus, Ohio, Alliance Data consists of businesses that together employ over 8,500
associates at more than 50 locations worldwide.
Alliance Data’s Card Services business is a provider of market-leading private label, co-brand, and business credit card programs. LoyaltyOne® owns and
operates the AIR MILES® Reward Program, Canada’s most recognized loyalty program, and Netherlands-based BrandLoyalty, a global provider of tailor-made loyalty programs for grocers. More information about Alliance Data can be found at
www.AllianceData.com.
Follow Alliance Data on Twitter, Facebook, LinkedIn, Instagram and YouTube.
6
Alliance Data Systems Corporation
October 29, 2020
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
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|
Three Months Ended
September 30,
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Nine Months Ended
September 30,
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2020
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2019
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2020
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2019
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Revenue
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$
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1,050.5
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$
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1,437.6
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$
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3,411.5
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$
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4,120.3
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||||||||
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Operating expenses:
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||||||||||||||||
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Cost of operations
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511.7
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719.3
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1,547.9
|
2,110.0
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||||||||||||
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Provision for loan loss
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207.7
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297.3
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1,113.7
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806.8
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||||||||||||
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Depreciation and amortization
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40.1
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44.9
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120.3
|
133.2
|
||||||||||||
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Loss on extinguishment of debt
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—
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71.9
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—
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71.9
|
||||||||||||
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Total operating expenses
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759.5
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1,133.4
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2,781.9
|
3,121.9
|
||||||||||||
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Operating income
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291.0
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304.2
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629.6
|
998.4
|
||||||||||||
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Interest expense, net:
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||||||||||||||||
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Securitization funding costs
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37.5
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51.4
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130.1
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160.3
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||||||||||||
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Interest expense on deposits
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52.9
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62.5
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172.1
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164.4
|
||||||||||||
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Interest expense on long-term and other debt, net
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24.7
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26.1
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79.1
|
102.7
|
||||||||||||
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Total interest expense, net
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115.1
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140.0
|
381.3
|
427.4
|
||||||||||||
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Income from continuing operations before income taxes
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$
|
175.9
|
$
|
164.2
|
$
|
248.3
|
$
|
571.0
|
||||||||
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Income tax expense
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42.6
|
42.6
|
46.6
|
128.8
|
||||||||||||
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Income from continuing operations
|
133.3
|
121.6
|
201.7
|
442.2
|
||||||||||||
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Loss from discontinued operations, net of taxes
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—
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(229.2
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)
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—
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(261.7
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)
|
||||||||||
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Net income (loss)
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$
|
133.3
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$
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(107.6
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)
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$
|
201.7
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$
|
180.5
|
|||||||
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Per share data:
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||||||||||||||||
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Weighted average shares outstanding – basic
|
47.7
|
48.8
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47.7
|
51.1
|
||||||||||||
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Weighted average shares outstanding – diluted
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47.8
|
50.4
|
47.7
|
52.1
|
||||||||||||
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Basic – Income from continuing operations
|
$
|
2.79
|
$
|
2.47
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$
|
4.23
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$
|
8.49
|
||||||||
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Basic – Loss from discontinued operations
|
—
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(4.69
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)
|
—
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(5.12
|
)
|
||||||||||
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Basic – Net income (loss)
|
$
|
2.79
|
$
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(2.22
|
)
|
$
|
4.23
|
$
|
3.37
|
|||||||
|
Diluted – Income from continuing operations
|
$
|
2.79
|
$
|
2.41
|
$
|
4.23
|
$
|
8.50
|
||||||||
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Diluted – Loss from discontinued operations
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—
|
(4.54
|
)
|
—
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(5.03
|
)
|
||||||||||
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Diluted – Net income (loss)
|
$
|
2.79
|
$
|
(2.13
|
)
|
$
|
4.23
|
$
|
3.47
|
|||||||
7
Alliance Data Systems Corporation
October 29, 2020
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
September 30,
2020
|
December 31,
2019
|
|||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
3,078.4
|
$
|
3,874.4
|
||||
|
Credit card and loan receivables:
|
||||||||
|
Credit card and loan receivables
|
15,598.7
|
19,463.1
|
||||||
|
Allowance for loan loss
|
(2,080.9
|
)
|
(1,171.1
|
)
|
||||
|
Credit card and loan receivables, net
|
13,517.8
|
18,292.0
|
||||||
|
Credit card receivables held for sale
|
—
|
408.0
|
||||||
|
Redemption settlement assets, restricted
|
641.7
|
600.8
|
||||||
|
Right of use assets - operating
|
247.2
|
264.3
|
||||||
|
Intangible assets, net
|
89.3
|
153.3
|
||||||
|
Goodwill
|
969.4
|
954.9
|
||||||
|
Other assets
|
2,569.1
|
1,947.1
|
||||||
|
Total assets
|
$
|
21,112.9
|
$
|
26,494.8
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Deferred revenue
|
$
|
937.1
|
$
|
922.0
|
||||
|
Deposits
|
10,148.5
|
12,151.7
|
||||||
|
Non-recourse borrowings of consolidated securitization entities
|
4,344.3
|
7,284.0
|
||||||
|
Long-term and other debt
|
2,803.2
|
2,849.9
|
||||||
|
Operating lease liabilities
|
297.7
|
314.3
|
||||||
|
Other liabilities
|
1,259.5
|
1,384.6
|
||||||
|
Total liabilities
|
19,790.3
|
24,906.5
|
||||||
|
Stockholders’ equity
|
1,322.6
|
1,588.3
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
21,112.9
|
$
|
26,494.8
|
||||
8
Alliance Data Systems Corporation
October 29, 2020
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
Nine Months Ended
September 30,
|
|||||||||
|
|
2020
|
2019
|
||||||||
|
|
||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||
|
Net income
|
$
|
201.7
|
$
|
180.5
|
||||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||
|
Depreciation and amortization
|
120.3
|
206.4
|
||||||||
|
Deferred income taxes
|
(157.7
|
)
|
(187.0
|
)
|
||||||
|
Provision for loan loss
|
1,113.7
|
806.8
|
||||||||
|
Non-cash stock compensation
|
16.2
|
54.3
|
||||||||
|
Amortization of deferred financing costs
|
26.6
|
32.6
|
||||||||
|
Gain on sale of business
|
(13.7
|
)
|
(512.2
|
)
|
||||||
|
Loss on extinguishment of debt
|
—
|
71.9
|
||||||||
|
Asset impairment charges
|
34.2
|
49.3
|
||||||||
|
Change in operating assets and liabilities, net of sale of business
|
121.6
|
611.8
|
||||||||
|
Other
|
25.7
|
215.8
|
||||||||
|
Net cash provided by operating activities
|
1,488.6
|
1,530.2
|
||||||||
|
Cash Flows from Investing Activities:
|
||||||||||
|
Change in redemption settlement assets
|
(31.3
|
)
|
(7.0
|
)
|
||||||
|
Change in credit card and loan receivables
|
3,107.8
|
(678.2
|
)
|
|||||||
|
Proceeds from sale of business
|
26.7
|
4,369.6
|
||||||||
|
Sale of credit card portfolios
|
289.5
|
980.0
|
||||||||
|
Purchase of credit card portfolios
|
—
|
(924.8
|
)
|
|||||||
|
Capital expenditures
|
(37.9
|
)
|
(119.2
|
)
|
||||||
|
Other
|
10.0
|
30.1
|
||||||||
|
Net cash provided by investing activities
|
3,364.8
|
3,650.5
|
||||||||
|
Cash Flows from Financing Activities:
|
||||||||||
|
Borrowings under debt agreements
|
1,150.0
|
2,092.3
|
||||||||
|
Repayments of borrowings
|
(1,194.5
|
)
|
(4,979.8
|
)
|
||||||
|
Net (decrease) increase in deposits
|
(2,012.0
|
)
|
709.4
|
|||||||
|
Non-recourse borrowings of consolidated securitization entities
|
435.0
|
3,576.8
|
||||||||
|
Repayments/maturities of non-recourse borrowings of consolidated securitization entities
|
(3,380.0
|
)
|
(4,332.2
|
)
|
||||||
|
Payment of debt extinguishment costs
|
—
|
(46.1
|
)
|
|||||||
|
Payment of deferred financing costs
|
(16.2
|
)
|
(27.1
|
)
|
||||||
|
Purchase of treasury shares
|
—
|
(975.9
|
)
|
|||||||
|
Dividends paid
|
(50.5
|
)
|
(97.4
|
)
|
||||||
|
Other
|
3.9
|
(16.1
|
)
|
|||||||
|
Net cash used in financing activities
|
(5,064.3
|
)
|
(4,096.1
|
)
|
||||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
3.7
|
(0.6
|
)
|
|||||||
|
Change in cash, cash equivalents and restricted cash
|
(207.2
|
)
|
1,084.0
|
|||||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
3,958.1
|
3,967.7
|
||||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
3,750.9
|
$
|
5,051.7
|
||||||
Note: The cash flow statement is presented with the combined
cash flows from discontinued operations with cash flows from continuing operations within each cash flow statement category.
9
Alliance Data Systems Corporation
October 29, 2020
ALLIANCE DATA SYSTEMS CORPORATION
SUMMARY FINANCIAL HIGHLIGHTS
(In millions)
(Unaudited)
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||||||||||
|
2020
|
2019
|
Change
|
2020
|
2019
|
Change
|
|||||||||||||||||||
|
Segment Revenue:
|
||||||||||||||||||||||||
|
LoyaltyOne
|
$
|
184.8
|
$
|
245.5
|
(25
|
)%
|
$
|
533.9
|
$
|
700.7
|
(24
|
)%
|
||||||||||||
|
Card Services
|
865.7
|
1,192.0
|
(27
|
)
|
2,877.5
|
3,419.3
|
(16
|
)
|
||||||||||||||||
|
Corporate/Other
|
—
|
0.1
|
nm*
|
0.1
|
0.3
|
nm*
|
||||||||||||||||||
|
Total
|
$
|
1,050.5
|
$
|
1,437.6
|
(27
|
)%
|
$
|
3,411.5
|
$
|
4,120.3
|
(17
|
)%
|
||||||||||||
|
Segment Earnings Before Taxes:
|
||||||||||||||||||||||||
|
LoyaltyOne
|
$
|
18.3
|
$
|
(5.2
|
)
|
(451
|
)%
|
$
|
88.9
|
$
|
45.3
|
97
|
%
|
|||||||||||
|
Card Services
|
212.1
|
300.1
|
(29
|
)
|
314.5
|
829.8
|
(62
|
)
|
||||||||||||||||
|
Corporate/Other
|
(54.5
|
)
|
(130.7
|
)
|
(58
|
)
|
(155.1
|
)
|
(304.1
|
)
|
(49
|
)
|
||||||||||||
|
Total
|
$
|
175.9
|
$
|
164.2
|
7
|
%
|
$
|
248.3
|
$
|
571.0
|
(57
|
)%
|
||||||||||||
|
Segment Adjusted EBITDA, net:
|
||||||||||||||||||||||||
|
LoyaltyOne
|
$
|
40.1
|
$
|
58.2
|
(31
|
)%
|
$
|
141.8
|
$
|
164.3
|
(14
|
)%
|
||||||||||||
|
Card Services
|
233.1
|
328.0
|
(29
|
)
|
407.2
|
910.1
|
(55
|
)
|
||||||||||||||||
|
Corporate/Other
|
(23.7
|
)
|
(18.9
|
)
|
25
|
(59.8
|
)
|
(80.9
|
)
|
(26
|
)
|
|||||||||||||
|
Total
|
$
|
249.5
|
$
|
367.3
|
(32
|
)%
|
$
|
489.2
|
$
|
993.5
|
(51
|
)%
|
||||||||||||
|
Key Performance Indicators:
|
||||||||||||||||||||||||
|
Credit sales
|
$
|
6,152
|
$
|
7,824
|
(21
|
)%
|
$
|
17,050
|
$
|
21,690
|
(21
|
)%
|
||||||||||||
|
Average receivables
|
$
|
15,300
|
$
|
17,449
|
(12
|
)%
|
$
|
16,570
|
$
|
17,032
|
(3
|
)%
|
||||||||||||
|
Normalized average receivables
|
$
|
15,356
|
$
|
19,299
|
(20
|
)%
|
$
|
16,704
|
$
|
18,799
|
(11
|
)%
|
||||||||||||
|
Card Services gross yield
|
22.5
|
%
|
24.7
|
%
|
(2.2
|
)%
|
23.0
|
%
|
24.3
|
%
|
(1.3
|
)%
|
||||||||||||
|
Net principal loss rate
|
5.8
|
%
|
5.6
|
%
|
0.2
|
%
|
6.8
|
%
|
6.0
|
%
|
0.8
|
%
|
||||||||||||
|
Delinquency rate
|
4.7
|
%
|
5.9
|
%
|
(1.2
|
)%
|
4.7
|
%
|
5.9
|
%
|
(1.2
|
)%
|
||||||||||||
|
AIR MILES reward miles issued
|
1,240
|
1,344
|
(8
|
)%
|
3,609
|
4,025
|
(10
|
)%
|
||||||||||||||||
|
AIR MILES reward miles redeemed
|
687
|
1,078
|
(36
|
)%
|
2,289
|
3,217
|
(29
|
)%
|
||||||||||||||||
* nm = not meaningful
10
Alliance Data Systems Corporation
October 29, 2020
ALLIANCE DATA SYSTEMS CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended
September 30,
|
Nine Months Ended
September 30,
|
|||||||||||||||
|
|
2020
|
2019
|
2020
|
2019
|
|||||||||||||
|
Adjusted EBITDA and Adjusted EBITDA, net:
|
|||||||||||||||||
|
Income from continuing operations
|
$
|
133.3
|
$
|
121.6
|
$
|
201.7
|
$
|
442.2
|
|||||||||
|
Income tax expense
|
42.6
|
42.6
|
46.6
|
128.8
|
|||||||||||||
|
Total interest expense, net
|
115.1
|
140.0
|
381.3
|
427.4
|
|||||||||||||
|
Depreciation and other amortization
|
18.4
|
19.9
|
56.2
|
59.8
|
|||||||||||||
|
Amortization of purchased intangibles
|
21.7
|
25.0
|
64.1
|
73.4
|
|||||||||||||
|
Stock compensation expense
|
5.3
|
3.0
|
16.2
|
24.6
|
|||||||||||||
|
Gain on sale of business, net of strategic transaction costs (1)
|
—
|
—
|
(8.0
|
)
|
—
|
||||||||||||
|
Strategic transaction costs (2)
|
3.5
|
2.3
|
6.8
|
5.0
|
|||||||||||||
|
Asset impairments (3)
|
—
|
—
|
34.2
|
—
|
|||||||||||||
|
Restructuring and other charges (4)
|
—
|
54.9
|
(7.7
|
)
|
85.1
|
||||||||||||
|
Loss on extinguishment of debt (5)
|
—
|
71.9
|
—
|
71.9
|
|||||||||||||
|
Adjusted EBITDA
|
$
|
339.9
|
$
|
481.2
|
$
|
791.4
|
$
|
1,318.2
|
|||||||||
|
Less: Funding costs (6)
|
90.4
|
113.9
|
302.2
|
324.7
|
|||||||||||||
|
Adjusted EBITDA, net of funding costs
|
$
|
249.5
|
$
|
367.3
|
$
|
489.2
|
$
|
993.5
|
|||||||||
|
Core Earnings:
|
|||||||||||||||||
|
Income from continuing operations
|
$
|
133.3
|
$
|
121.6
|
$
|
201.7
|
$
|
442.2
|
|||||||||
|
Add back: non-cash/ non-operating items:
|
|||||||||||||||||
|
Stock compensation expense
|
5.3
|
3.0
|
16.2
|
24.6
|
|||||||||||||
|
Amortization of purchased intangibles
|
21.7
|
25.0
|
64.1
|
73.4
|
|||||||||||||
|
Non-cash interest (7)
|
8.2
|
10.5
|
26.6
|
29.2
|
|||||||||||||
|
Gain on sale of business, net of strategic transaction costs (1)
|
—
|
—
|
(8.0
|
)
|
—
|
||||||||||||
|
Strategic transaction costs (2)
|
3.5
|
2.3
|
6.8
|
5.0
|
|||||||||||||
|
Asset impairments (3)
|
—
|
—
|
34.2
|
—
|
|||||||||||||
|
Restructuring and other charges (4)
|
—
|
54.9
|
(7.7
|
)
|
85.1
|
||||||||||||
|
Loss on extinguishment of debt (5)
|
—
|
71.9
|
—
|
71.9
|
|||||||||||||
|
Income tax effect (8)
|
(7.2
|
)
|
(34.4
|
)
|
(44.7
|
)
|
(73.4
|
)
|
|||||||||
|
Core earnings
|
$
|
164.8
|
$
|
254.8
|
$
|
289.2
|
$
|
658.0
|
|||||||||
|
Weighted average shares outstanding – diluted
|
47.8
|
50.4
|
47.7
|
52.1
|
|||||||||||||
|
Core earnings per share – diluted
|
$
|
3.45
|
$
|
5.05
|
$
|
6.06
|
$
|
12.64
|
|||||||||
|
Pre-provision pre-tax earnings:
|
|||||||||||||||||
|
Income from continuing operations before income taxes
|
$
|
175.9
|
$
|
164.2
|
$
|
248.3
|
$
|
571.0
|
|||||||||
|
Provision for loan loss
|
207.7
|
297.3
|
1,113.7
|
806.8
|
|||||||||||||
|
Pre-provision pre-tax earnings
|
$
|
383.6
|
$
|
461.5
|
$
|
1,362.0
|
$
|
1,377.8
|
|||||||||
|
(1)
|
Represents gain on sale of Precima in January 2020, net of strategic transaction costs. Precima was included in the Company’s LoyaltyOne segment.
|
|
(2)
|
Represents costs for professional services associated with strategic initiatives.
|
|
(3)
|
Represents asset impairment charges recorded in the second quarter of 2020, related to deferred contract costs and certain right of use assets.
|
|
(4)
|
Represents costs associated with restructuring and other exit activities. In 2020, the amounts consist of adjustments to our liability associated with
restructuring and other charges recorded for cost saving initiatives executed in 2019.
|
|
(5)
|
Represents loss on extinguishment of debt resulting from the redemption price of the senior notes and the write-off of deferred issuance costs related
to the July 2019 extinguishment of $1.9 billion outstanding senior notes and a mandatory payment of $500.0 million of the Company’s revolving credit facility.
|
|
(6)
|
Represents interest expense on deposits and securitization funding costs.
|
|
(7)
|
Represents amortization of debt issuance costs.
|
|
(8)
|
Represents the tax effect including the related non-GAAP measure adjustments using the expected effective annual tax rate.
|
11
Alliance Data Systems Corporation
October 29, 2020
|
Three Months Ended September 30, 2020
|
||||||||||||||||
|
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
|
Operating income (loss)
|
$
|
18.1
|
$
|
302.5
|
$
|
(29.6
|
)
|
$
|
291.0
|
|||||||
|
Depreciation and amortization
|
20.3
|
19.2
|
0.6
|
40.1
|
||||||||||||
|
Stock compensation expense
|
1.6
|
1.8
|
1.9
|
5.3
|
||||||||||||
|
Gain on sale of business, net of strategic transaction costs
|
—
|
—
|
—
|
—
|
||||||||||||
|
Strategic transaction costs
|
0.1
|
—
|
3.4
|
3.5
|
||||||||||||
|
Asset impairments
|
—
|
—
|
—
|
—
|
||||||||||||
|
Restructuring and other charges
|
—
|
—
|
—
|
—
|
||||||||||||
|
Adjusted EBITDA
|
40.1
|
323.5
|
(23.7
|
)
|
339.9
|
|||||||||||
|
Less: Funding costs
|
—
|
90.4
|
—
|
90.4
|
||||||||||||
|
Adjusted EBITDA, net
|
$
|
40.1
|
$
|
233.1
|
$
|
(23.7
|
)
|
$
|
249.5
|
|||||||
|
Three Months Ended September 30, 2019
|
||||||||||||||||
|
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
|
Operating income (loss)
|
$
|
(4.4
|
)
|
$
|
413.9
|
$
|
(105.3
|
)
|
$
|
304.2
|
||||||
|
Depreciation and amortization
|
19.8
|
23.5
|
1.6
|
44.9
|
||||||||||||
|
Stock compensation expense
|
0.7
|
2.4
|
(0.1
|
)
|
3.0
|
|||||||||||
|
Strategic transaction costs
|
0.1
|
—
|
2.2
|
2.3
|
||||||||||||
|
Restructuring and other charges
|
42.0
|
2.1
|
10.8
|
54.9
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
—
|
71.9
|
71.9
|
||||||||||||
|
Adjusted EBITDA
|
58.2
|
441.9
|
(18.9
|
)
|
481.2
|
|||||||||||
|
Less: Funding costs
|
—
|
113.9
|
—
|
113.9
|
||||||||||||
|
Adjusted EBITDA, net
|
$
|
58.2
|
$
|
328.0
|
$
|
(18.9
|
)
|
$
|
367.3
|
|||||||
|
Nine Months Ended September 30, 2020
|
||||||||||||||||
|
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
|
Operating income (loss)
|
$
|
88.4
|
$
|
616.7
|
$
|
(75.5
|
)
|
$
|
629.6
|
|||||||
|
Depreciation and amortization
|
56.9
|
61.0
|
2.4
|
120.3
|
||||||||||||
|
Stock compensation expense
|
4.1
|
5.3
|
6.8
|
16.2
|
||||||||||||
|
Gain on sale of business, net of strategic transaction costs
|
(8.0
|
)
|
—
|
—
|
(8.0
|
)
|
||||||||||
|
Strategic transaction costs
|
0.3
|
—
|
6.5
|
6.8
|
||||||||||||
|
Asset impairments
|
—
|
34.2
|
—
|
34.2
|
||||||||||||
|
Restructuring and other charges
|
0.1
|
(7.8
|
)
|
—
|
(7.7
|
)
|
||||||||||
|
Adjusted EBITDA
|
141.8
|
709.4
|
(59.8
|
)
|
791.4
|
|||||||||||
|
Less: Funding costs
|
—
|
302.2
|
—
|
302.2
|
||||||||||||
|
Adjusted EBITDA, net
|
$
|
141.8
|
$
|
407.2
|
$
|
(59.8
|
)
|
$
|
489.2
|
|||||||
|
Nine Months Ended September 30, 2019
|
||||||||||||||||
|
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
|
Operating income (loss)
|
$
|
47.9
|
$
|
1,154.5
|
$
|
(204.0
|
)
|
$
|
998.4
|
|||||||
|
Depreciation and amortization
|
59.7
|
68.5
|
5.0
|
133.2
|
||||||||||||
|
Stock compensation expense
|
6.5
|
9.7
|
8.4
|
24.6
|
||||||||||||
|
Strategic transaction costs
|
0.3
|
—
|
4.7
|
5.0
|
||||||||||||
|
Restructuring charges
|
49.9
|
2.1
|
33.1
|
85.1
|
||||||||||||
|
Loss on extinguishment of debt
|
—
|
—
|
71.9
|
71.9
|
||||||||||||
|
Adjusted EBITDA
|
164.3
|
1,234.8
|
(80.9
|
)
|
1,318.2
|
|||||||||||
|
Less: Funding costs
|
—
|
324.7
|
—
|
324.7
|
||||||||||||
|
Adjusted EBITDA, net
|
$
|
164.3
|
$
|
910.1
|
$
|
(80.9
|
)
|
$
|
993.5
|
|||||||
12
Exhibit 99.2
Alliance Data Third Quarter 2020 ResultsOctober 29, 2020Ralph Andretta – President & CEOTim King –
EVP & CFO
Forward-Looking StatementsThis presentation contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as
“believe,” “expect,” “anticipate,” “estimate,” “intend,” “project,” “plan,” “likely,” “may,” “should” or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions
or goals also are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding, and the guidance we give with respect to, our anticipated operating or financial results,
initiation or completion of strategic initiatives, future dividend declarations, and future economic conditions, including, but not limited to, fluctuation in currency exchange rates, market conditions and COVID-19 impacts related to relief
measures for impacted borrowers and depositors, labor shortages due to quarantine, reduction in demand from clients, supply chain disruption for our reward suppliers and disruptions in the airline or travel industries.We believe that our
expectations are based on reasonable assumptions. Forward-looking statements, however, are subject to a number of risks and uncertainties that could cause actual results to differ materially from the projections, anticipated results or other
expectations expressed in this presentation, and no assurances can be given that our expectations will prove to have been correct. These risks and uncertainties include, but are not limited to, factors set forth in the Risk Factors section in
our Annual Report on Form 10-K for the most recently ended fiscal year, which may be updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form 10-Q filed for periods subsequent to such Form 10-K. Our forward-looking statements speak
only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward-looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated
circumstances or otherwise.
Key Highlights Strong financial results across key metricsContinued progress on strategic
prioritiesInvestment in initiatives to drive long-term growth 3
$2.79 Diluted EPS $1.1B Revenue $133MM Net income Credit sales of $6.2 billion in 3Q20 represented a
28% increase versus 2Q20 Average receivables declined 5% versus 2Q20 due to the continued impact from COVID-19Credit metrics exceeded our expectations with a net loss rate of 5.8% for the quarterAIR MILES® reward miles issued and redeemed
improved 18% and 13% respectively versus 2Q20 4 2020 Third Quarter Financial HighlightsStrong results across key metrics $250MM Adj. EBITDA, net
Credit sales improved 28% from 2Q20 as retailers continued reopening & consumer spend improvedCredit
sales from diversified verticals* represented 65% of sales in 3Q20 vs 55% in 2019Beauty, home décor, general retail, and hard goods all returned to positive year-over-year sales growth Card Services Performance HighlightsEncouraging credit
sales trends emerging across channels and verticals 5 Credit sales continue to rebound from pandemic lows across channels *Diversified verticals represent verticals outside of specialty apparel, department stores, and
jewelry Sequential growth driven by store reopening and multi-channel spend 2020 year-over-year growth Online brand sales for both PLCC & Co-Brand cards Both online and in-person non-brand sales for Co-Brand card In-person
store brand sales forboth PLCC & Co-Brand cards
Renewal of key partner relationships including:GameStop, the world’s largest video game, consumer
electronics and collectibles retailerBealls Outlet/Burkes Outlet, a regional off-price retailer with more than 500 locations Card Services Performance HighlightsFocus on driving sustained, profitable growth 6 Partner Renewals New Vertical
Growth Customer Expansion Market leader in fast-growing specialty retail verticals, including beauty ($530B industry / 7% CAGR)Launched two new partnerships:Sally Beauty, the largest distributor of professional beauty supplies in the U.SSalon
Centric (part of L'Oréal), one of the largest distributors of professional salon and beauty supplies in the U.S.Alliance Data now manages the Top 4 programs in the U.S. beauty industry Strategically offering the new Comenity bankcard to select
customers for expanded customer utilityCash back rewards and category accelerators that drove higher than expected response ratesStrong millennial engagement with highest sales/activeEarly metrics suggest strong credit performance
trendsOpportunity to grow via new acquisition and retention strategies Digital and mobile engagement and servicing Integrated real-time prescreen and expanded loyalty program
LoyaltyOne® Performance HighlightsBetter business conditions lead to sequential 22% revenue improvement
over 2Q20 Reward miles issued and redeemed improved vs 2Q20; however, the year-over-year impact of lower discretionary spend continuesAIR MILES continues to pivot the rewards portfolio to emphasize more non-travel options, driving higher
merchandise redemptions in 3Q20 7 AIR MILES program performance Revenue improved 37% vs 2Q20 as business conditions strengthenedWith the potential return of COVID-19-related lockdowns in Europe, many retailers continue to delay promotional
programs until 2021 Reward miles issued improved from 2Q20 low
Doubling Down on Digital EngagementContinue to grow and accelerate our next generation of digital
experiences 8 Digital ServicingConvenient and secure management78% of bills are paid digitally (+6% YOY) Digital Presentmentpresents financing and rewards earlier in the buying experience45% of sales are made online (+33% YOY) Digital
ApplicationFrictionless user experience with 65% pre-filled customer data70%of applications are digital (+8% YOY) Digital PaymentsContactless and wallet integration66% of chip cards are contactless with wallet usage doubling YOY
Modern and scalable platformFlexible platform enables seamless addition of new capabilitiesOperational
and product efficiencies through leading technologyEnables focus and investment on market differentiatorsTechnologyDataDigital Investment HighlightsProduct and technology enhancements to support growth and digital acceleration 9 Point of
sale technology platform which further enhances our digital product suiteBuy now, pay laterInstallment loansWhite-label offeringsTech stack integrates seamlesslyEmbedded Growth strategyExpand to new customer segments and verticals Enhanced
penetration with existing customers Full digital payments solution including real-time financing and marketing presentment across the buying journey from product page to checkoutSingle API integration using a software development kit for fast,
simple integrationScalable, one-stop digital integration tool for brand partners Technology Advancement Digital Experiences Product Expansion
10 $450 million of estimated consideration, of which approximately $100 million is Alliance Data common
stockAccelerates ADS growth profile, particularly in rapidly growing ecommerce payments spaceExpected to be accretive to EPS within three yearsBread’s talented team of ~185 employees will join Alliance DataBread’s development team will focus on
current priorities and clients as well as spearheading a new digital innovation hub, in NYC, driving ADS digital initiatives Completion subject to customary closing conditionsExpected to close in the fourth quarter of 2020No incremental
leverage required to complete the transactionEquity element demonstrates confidence in Alliance Data’s long-term success No impact on our capital allocation
strategy Consideration FinancialImpact Talent ExpectedTiming CapitalStructure Strategic Acquisition Expands digital capabilities with installment loan and buy now, pay later products
Expand digital offeringsEnhanced Digital SuitePOS payment solutionsTechnology flexibility &
upgradesCore processing platformEnhance data & analyticsPrudent Balance Sheet actions Associate safety & healthRecession readiness planRight-size expense baseDisciplined risk management Review partnership economics 11 2020 Action
ItemsDeliberate and thoughtful progress balancing the pandemic and future growth Rebuild Recover These actions along with our on-going strategic initiatives will focus on profitable growth and driving shareholder value Focused
investmentAlign with recovery trendFurther digital enhancementsSustained, profitable growthExpense flexibility and disciplineDrive shareholder value Regrow
Totals may not sum due to rounding; nm = not meaningful Third Quarter 2020 Results Revenue Adjusted
EBITDA, net Earnings Before Tax 12 (1) Percentages based on Card Services and LoyaltyOne segments combined as reported excluding Corporate/Other and intersegment eliminations ($ in millions, except per share) 3Q20 3Q19 % Change
LoyaltyOne $185 $246 (25)% Card Services $866 $1,192 (27)% Corporate/Other - - nm Total Revenue $1,050 $1,438 (27)% LoyaltyOne $18 $(5) nm Card Services $212 $300 (29)% Corporate/Other $(55) $(131) (58)% Total
Earnings before Tax (EBT) $176 $164 7% LoyaltyOne $40 $58 (31)% Card Services $233 $328 (29)% Corporate/Other $(24) $(19) 25% Adjusted EBITDA, net $250 $367 (32)% Income from continuing
operations $133 $122 10% Income from continuing operations per diluted share $2.79 $2.41 16% Pre-Provision, earnings before tax $384 $462 (17%) 8% (1) (1) (1)
13 Key Business MetricsImproving sales and rebound in yield drove sequential revenue improvement Credit
sales improved on a sequential basis providing optimism that pressure on receivables is subsiding as we move towards the typical fourth quarter seasonal step-up in receivable balances Revenue growth on a sequential basis was aided by card gross
yield improvement as the impact of COVID-related customer relief on fees was mitigatedAs a result of the revenue growth, expenses increased sequentially, including a $27 million increase in cost of redemptions in our LoyaltyOne
businessYear-over-year fixed cost savings actions remain on track with realized savings of approx. $50 million in 3Q20 *Normalized card receivables includes held-for-sale receivables Card Services yield rebounded from 2Q20 Credit sales
improved sequentially($ in billions) 28%
Consumer payments remain strong with increasing payment rates and payments made in full during the
quarterThe COVID-related customer relief program now represents 3% of total card receivables as of quarter-end73% of enrollees made a payment in 3Q20, up from 55% in 2Q20 Total account payment behavior trends continue to trend
upward Cardmember Payment BehaviorPayment trends remain favorable with 84% of accounts making a payment in 3Q 14 2Q20 Payment behaviors on accounts enrolled in COVID-related customer relief also continue to improve 3Q20 55% Made a
payment 73% Made a payment
CECL adoption impact of $644 million on 1/1/20Allowance of $2.1 billion remains flat vs 2Q20, and
nearly double 3Q19 CECL 15 Credit Quality and AllowanceCredit metrics remain resilient Max net loss rate since 2005: 10.0% Min net loss rate since 2005: 3.8% Avg net loss rate since 2005: ~6.0% Delinquency rate Net loss rates Reserve
rate ($ in millions) (1) Calculated as a percentage of allowance for loan loss to end of period credit card and loan receivables (1) Delinquency rate trending favorably - - - includes historic quarterly range from 2005-3Q20 Reserve
rate maintained at 13.3%
Actions taken since 9/30/19:Completed two offerings of senior notes, for $850 million & $500
million maturing in 2024 & 2026, respectivelyRepaid $1.33 billion of term loanExtended the credit facility by 18 months from June 2021 to December 2022Added covenant flexibility: Amended Company’s credit agreement to allow certain covenant
flexibility over a specific period beginning in 2021 toincrease the maximum total leverage ratiodecrease the minimum interest coverage ratioincrease the maximum permitted average delinquency ratio 16 Balance Sheet ManagementPrudent actions to
opportunistically extend, diversify, and de-risk Capital structure management:9/30/19 9/30/20$2.86 billion due 06/21 --- 1.75 years $1.48 billion due 12/22 --- 2.25 years $0.85 billion due 12/24 --- 4.25 years $0.50 billion due 01/26 --- 5.33
years
Parent Level Liquidity at 9/30 of $1.2 billion, consisting of cash on hand plus revolver capacity
Approximately $430 million in cash and cash equivalents, $750 million in unused revolverFully paid down revolver in the third quarter 2020The next debt maturity in December 2022 is out more than two yearsBank LevelBanks finished the quarter
with $2.7 billion in cash and $2.6 billion in equityTotal Risk Based Capital Ratio at 20.1% - double the 10% threshold to be considered well-capitalized; CET1 at 18.8%Funding readily availableHeavy demand for FDIC-insured deposit products –
both direct-to-consumer and brokeredRetail deposits have tripled as a percentage of our funding since 2Q19Renewed all three conduits with $3.2 billion of conduit capacity through either April or October 2022 17 Capital and Liquidity
UpdateSufficient corporate liquidity; Banks remain well-capitalized
18 Leverage technology as a competitive advantage with continued innovation and a focus on reducing our
cost to serve TechnologyInnovation Expand our product base to offer a suite of financial solutions that empowers today’s consumers Product Diversification and Development Deliver an advanced digital experience for our brand partners and
consumers DigitalAdvancement Evolution in intelligent automation and analytical sciences to drive incremental insights, retention, and operating leverage Data Science and Analytics Strategic InitiativesFocused investment to drive
sustainable long-term shareholder value Active risk management Prudent balance sheet management Disciplined expense management Key Foundational Elements
Questions & Answers
Financial MeasuresIn addition to the results presented in accordance with generally accepted accounting
principles, or GAAP, the Company may present financial measures that are non-GAAP measures, such as constant currency financial measures, pre-provision earnings before taxes, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, net of
funding costs, core earnings and core earnings per diluted share (core EPS). Constant currency excludes the impact of fluctuations in foreign exchange rates. The Company calculates constant currency by converting our current period local
currency financial results using the prior period exchange rates. The Company uses adjusted EBITDA and adjusted EBITDA, net as an integral part of internal reporting to measure the performance and operational strength of reportable segments and
to evaluate the performance of senior management. Adjusted EBITDA eliminates the uneven effect across all reportable segments of non-cash depreciation of tangible assets and amortization of intangible assets, including certain intangible assets
that were recognized in business combinations, and the non-cash effect of stock compensation expense. In addition, adjusted EBITDA eliminates the effect of the gain (loss) on the sale of a business, strategic transaction costs, asset
impairments, restructuring and other charges, and the loss on extinguishment of debt. Adjusted EBITDA, net is equal to adjusted EBITDA less securitization funding costs and interest expense on deposits. Similarly, core earnings and core EPS
eliminate non-cash or non-operating items, including, but not limited to, stock compensation expense, amortization of purchased intangibles, non-cash interest, gain (loss) on the sale of a business, strategic transaction costs, asset
impairments, restructuring and other charges, and the loss on extinguishment of debt. The Company believes that these non-GAAP financial measures, viewed in addition to and not in lieu of the Company’s reported GAAP results, provide useful
information to investors regarding the Company’s performance and overall results of operations. 20
Appendix 21
(in millions, except per share) 3Q20 3Q19 % Change Revenue $1,050 $1,438 (27)% Income
from continuing operations $133 $122 10% Income from continuing operations per diluted share (EPS) $2.79 $2.41 16% Core EPS $3.45 $5.05 (32)% Adjusted EBITDA $340 $481 (29)% Adjusted EBITDA,
net $250 $367 (32)% Pre-Provision, earnings before taxes $384 $462 (17)% Diluted shares outstanding 47.8 50.4 ********************************************************************************** (Including
discontinued operations) Net income (loss) $133 $(108) nm Net income (loss) per diluted share $2.79 $(2.13) nm Third Quarter 2020 Consolidated Results 22 *nm= not meaningful
1 Normalized card receivables includes held-for-sale receivables2 Revenue divided by normalized card
receivables3 Excludes mark-to-market on held-for-sale receivables and asset impairment charges 3Q20 3Q19 3Q20 vs 2Q20 3Q20 vs 3Q19 2Q20 LoyaltyOne (in millions) AIR MILES Reward Miles Issued 1,240 1,344
(8)% 1,053 18% AIR MILES Reward Miles Redeemed 687 1,078 (36)% 608 13% Card Services ($ in millions) Credit Sales $6,152 $7,824 (21)% $4,799 28% Average Card
Receivables $15,300 $17,449 (12)% $16,116 (5)% Normalized Average Card Receivables 1 $15,356 $19,299 (20)% $16,204 (5)% End of Period Receivables $15,599 $17,928 (13)% $15,809 (1)% Total Gross Yield %
2 22.5% 24.7% (2.2)% 20.4% 2.1% Operating Expense % 3 9.2% 8.7% 0.5% 9.1% 0.1% Cost of Funds 2.4% 2.4% -% 2.5% (0.1)% Principal Loss Rate 5.8% 5.6% 0.2% 7.6% (1.8)% Reserve
Rate 13.3% 5.9% 7.4% 13.3% -% Delinquency Rate 4.7% 5.9% (1.2)% 4.3% 0.4% Return on Equity 14% 28% (14)% 15% (1)% Key Business Metrics 23
Bank Capital Ratios 24 1Q20 2Q20 3Q20 Combined Banks Common Equity Tier 1 Capital
Ratio 15.9% 18.3% 18.8% Tier 1 Capital Ratio 15.9% 18.3% 18.8% Total Risk Based Capital Ratio 17.3% 19.7% 20.1% Tier 1 Leverage Capital Ratio 12.8% 14.2% 16.1%