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):
February 7, 2019
ALLIANCE DATA SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Charter)
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DELAWARE
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001-15749
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31-1429215
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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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7500 DALLAS PARKWAY, SUITE 700
PLANO, TEXAS 75024
(Address and Zip Code of Principal Executive Offices)
(214) 494-3000
(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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[ ]
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Written communications pursuant to Rule 425 under the Securities Act
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[ ]
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act
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[ ]
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act
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[ ]
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
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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 February 7, 2019, Alliance Data Systems Corporation (the "Company") issued a press release regarding its results of
operations for the fourth quarter and fiscal year ended December 31, 2018. A copy of this press release is furnished as Exhibit 99.1.
ITEM 7.01. Regulation FD Disclosure
On February 7, 2019, the Company issued a press release regarding its results of operations for the fourth quarter and
fiscal year ended December 31, 2018. 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 February 7, 2019 announcing the results of operations for the fourth quarter and fiscal year ended December 31,
2018.
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Investor Presentation Materials.
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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: February 7, 2019
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By:
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/s/ Charles L. Horn
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Charles L. Horn
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Executive Vice President and
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Chief Financial Officer
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Exhibit 99.1
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Contacts:
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Investors/Analysts
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Tiffany Louder
Alliance Data
214-494-3048
Tiffany.Louder@alliancedata.com
Media
Shelley Whiddon
Alliance Data
214-494-3811
Shelley.Whiddon@alliancedata.com
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Alliance Data Reports Full-Year 2018
Results
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·
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Revenue Increases 1 Percent to $7.8 Billion
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||
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o Pro Forma Revenue Increases 5 Percent to $8.1 Billion
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·
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EPS Increases 24 Percent to $17.49
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·
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Core EPS Increases 17 Percent to $22.72
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·
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Quarterly Dividend Increases to $0.63 per Share
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Plano, TX, February 7, 2019 – Alliance
Data Systems Corporation (NYSE: ADS), a leading global provider of data-driven marketing and loyalty solutions, today announced results for the year ended December 31, 2018.
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SUMMARY
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Quarter Ended December 31,
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Year Ended December 31,
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||||||||||||||||||||||||
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(in millions, except per share amounts)
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2018
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2017
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% Change
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2018
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2017
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% Change
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||||||||||||||||||||
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Revenue
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$
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2,056
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$
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2,106
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-2
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%
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$
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7,791
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$
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7,719
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+1
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%
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||||||||||||||
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Pro forma revenue
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$
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2,125
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$
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2,106
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+1
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%
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$
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8,075
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$
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7,719
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+5
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%
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||||||||||||||
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Net income
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$
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285
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$
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271
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+5
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%
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$
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963
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$
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789
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+22
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%
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||||||||||||||
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Net income per diluted share (“EPS”)
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$
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5.25
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$
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4.88
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+8
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%
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$
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17.49
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$
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14.10
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+24
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%
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||||||||||||||
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Diluted shares outstanding
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54.2
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55.6
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55.1
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55.9
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||||||||||||||||||||||
| ******************************* | |
|||||||||||||||||||||||||
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Supplemental Non-GAAP Metrics (a):
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||||||||||||||||||||||||||
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Adjusted EBITDA
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$
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715
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$
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598
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+20
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%
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$
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2,466
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$
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2,218
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+11
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%
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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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608
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$
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514
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+18
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%
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$
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2,080
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$
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1,937
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+7
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%
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||||||||||||||
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Core earnings per diluted share (“core EPS”)
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$
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7.04
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$
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6.26
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+12
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%
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$
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22.72
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$
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19.35
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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.
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Alliance Data Systems Corporation
February 7, 2019
Ed Heffernan, president and chief executive officer of Alliance Data, commented, “Pro forma revenue increased 5 percent to $8.1 billion for
2018, below our expectations due to strategic re-positioning at Card Services and softness at Epsilon®. Conversely, core EPS increased 17 percent to $22.72 for 2018 reaching the middle of our initial guidance range.
“During the third quarter earnings call, we outlined our plan to shift to more attractive growth verticals and clients within our Card
Services segment. While this strategic shift creates pressure on credit card receivables growth for 2019, it should over time facilitate higher receivables growth rates and stabilize or improve principal loss and delinquency rates. During the year,
we moved aggressively towards that goal as we sold $1.2 billion of credit card receivables and added $925 million to credit card receivables held-for-sale at year-end, both related to non-strategic clients.”
Heffernan continued: “Regarding Epsilon, we recently received preliminary bids and the process continues to move forward as expected.”
CONSOLIDATED RESULTS
FOURTH-QUARTER CONSOLIDATED RESULTS
Revenue decreased 2 percent to $2.06 billion for the fourth quarter of 2018. Pro forma revenue − which adjusts for the change to net revenue
presentation for AIR MILES® effective January 1, 2018 − increased 1 percent to $2.13 billion. EPS increased 8 percent to $5.25, while core EPS increased 12 percent to $7.04 for the fourth quarter of 2018. The effective tax rate for EPS
was approximately 28 percent, compared to approximately 11 percent for the fourth quarter of 2017, which benefitted from the revaluation of certain deferred tax liabilities as a result of tax reform legislation. Adjusted EBITDA, net increased 18
percent to $608 million for the fourth quarter of 2018, driven by double-digit growth in the Card Services segment.
FULL-YEAR CONSOLIDATED RESULTS
Revenue increased 1 percent to $7.79 billion, while pro forma revenue increased 5 percent to $8.08 billion. EPS increased 24 percent to
$17.49, while core EPS increased 17 percent to $22.72 for 2018. Adjusted EBITDA, net increased 7 percent to $2.08 billion.
2
Alliance Data Systems Corporation
February 7, 2019
FULL-YEAR SEGMENT RESULTS
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Year Ended December 31,
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(in millions)
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2018
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2017
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% Change
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Revenue:
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LoyaltyOne®
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$
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1,068
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$
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1,304
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ASC 606 adjustment (a)
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284
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—
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LoyaltyOne pro forma revenue
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1,352
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1,304
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+4
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%
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Epsilon
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2,175
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2,272
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-4
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%
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Card Services
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4,598
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4,171
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+10
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%
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Corporate/other and eliminations
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(50
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)
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(28
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)
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Total pro forma revenue
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$
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8,075
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$
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7,719
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+5
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%
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Adjusted EBITDA, net:
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LoyaltyOne
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$
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254
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$
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257
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-1
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%
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Epsilon®
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475
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476
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—
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%
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Card Services
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1,496
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1,345
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+11
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%
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Corporate/other
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(145
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)
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(141
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)
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Total adjusted EBITDA, net
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$
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2,080
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$
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1,937
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+7
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%
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(a)
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Represents classification of certain redemption revenue recorded net upon the adoption of ASC 606, Revenue from Contracts
with Customers, January 1, 2018.
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LoyaltyOne®: Pro forma revenue increased 4 percent to $1.35 billion and adjusted EBITDA decreased 1 percent to $254 million for the year ended December 31, 2018. AIR MILES reward miles issued
were flat for the year due to a pullback in promotional activity by our sponsors in the fourth quarter of 2018. BrandLoyalty returned to double-digit revenue growth for the year, but adjusted EBITDA was essentially flat, a result of lower margin
programs in key markets and weakened performance in Asia.
Epsilon: Revenue
decreased 4 percent to $2.18 billion while adjusted EBITDA was flat at $475 million for the year ended December 31, 2018. Revenue decreased $97 million from 2017 due to a decline in lower margin agency and site-based display product offerings. All
other product offerings were essentially flat for the year. Adjusted EBITDA margins expanded 100 basis points to 22 percent for the year, due to the favorable shift in revenue mix.
Card Services:
Revenue increased 10 percent to $4.6 billion and adjusted EBITDA, net increased 11 percent to $1.5 billion for the year. The loan loss provision decreased 11 percent to $1.02 billion as a result of an approximate 3 percent decline in reservable
card receivables and improving principal loss rate trends. Reservable card receivables decreased primarily due to the sale of $1.2 billion in card receivables and a $925 million increase in held-for-sale receivables. Held-for-sale receivables are
removed from credit card receivables and the related allowance for loan loss. In addition, no provision expense is recognized after the reclassification to held-for-sale. Rather, the market value of these receivables is continuously adjusted
through a charge recorded in operating expenses, which aggregated $102 million in 2018.
3
Alliance Data Systems Corporation
February 7, 2019
Average credit card receivables increased 8 percent for the year, but decreased 3 percent in the fourth quarter due to both portfolio
divestitures and reclassification of non-strategic portfolios to held-for-sale.
2019 Guidance
Revenue of $8.1 billion, representing a 4 percent increase over 2018. Core EPS of $22.00, down 3 percent compared with 2018. The core EPS
growth rate is muted − especially in the first-half of 2019 − as the Company completes the divestiture of non-strategic held-for-sale portfolios, which began in the second-half of 2018.
Revenue and core EPS for the first quarter of 2019 are expected to be down mid single-digits and high single-digits, respectively, due to the
impact on credit card receivables growth discussed above.
All guidance measures are subject to adjustment due to potential divestiture of Epsilon, any potential gain from divestiture and the related
use of proceeds.
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 strategic evaluations, potential transactions and the use of expected proceeds thereof, our expected operating results, future economic conditions including currency exchange
rates, future dividend declarations and the guidance we give with respect to our anticipated financial performance.
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. Further risks and uncertainties include, but are not limited to, the structure and timing of any transaction involving Epsilon, whether and on what terms a transaction
will be completed, the possibility that closing conditions for a transaction may not be satisfied or waived, the impact of our strategic evaluations and any transaction on us or our business if a transaction is completed, and whether the benefits
of a transaction can be achieved.
4
Alliance Data Systems Corporation
February 7, 2019
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.
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, 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.
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, strategic transaction costs, amortization of debt issuance and
hedging costs. 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). No reconciliation is provided with respect to
forward-looking annual guidance for 2019 core EPS as the Company cannot reliably predict all necessary components or their impact to reconcile core EPS to GAAP EPS without unreasonable effort. 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.
Conference Call
Alliance Data will host a conference call on Thursday, February 7, 2019 at 8:30 a.m. (Eastern Time) to discuss the Company’s year-end 2018
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.
5
Alliance Data Systems Corporation
February 7, 2019
If you are unable to participate in the conference call, a replay will be available. To access the replay, please dial (855) 859-2056 or
(404) 537-3406 and enter “9274238”. The replay will be available at approximately 11:45 a.m. (Eastern Time) on Thursday, February 7, 2019.
About Alliance Data
Alliance Data® (NYSE: ADS) is a leading global
provider of data-driven marketing and loyalty solutions serving large, consumer-based industries. The Company creates and deploys customized solutions, enhancing the critical customer marketing experience; the result is measurably changing consumer
behavior while driving business growth and profitability for some of today's most recognizable brands. Alliance Data helps its clients create and increase customer loyalty through solutions that engage millions of customers each day across multiple
touch points using traditional, digital, mobile and emerging technologies. An S&P 500, FORTUNE 500 and FORTUNE 100 Best Companies to Work For company headquartered in Plano, Texas, Alliance Data consists of three businesses that together employ
approximately 20,000 associates at more than 100 locations worldwide.
Alliance Data’s card services business is a provider of market-leading private label, co-brand, and business credit card programs. Epsilon®
is a leading provider of multichannel, data-driven technologies and marketing services, and also includes Conversant®, a leader in personalized digital marketing. 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.
Follow Alliance Data on Twitter, Facebook, LinkedIn, Instagram
and YouTube.
6
Alliance Data Systems Corporation
February 7, 2019
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
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|
Three Months Ended December 31,
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Year Ended
December 31,
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||||||||||||||
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2018
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2017
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2018
|
2017
|
||||||||||||
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Revenue
|
$
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2,055.9
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$
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2,106.2
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$
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7,791.2
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$
|
7,719.4
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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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1,191.0
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1,188.1
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4,393.6
|
4,436.2
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||||||||||||
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Provision for loan loss
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169.6
|
332.2
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1,016.0
|
1,140.1
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||||||||||||
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Depreciation and amortization
|
121.1
|
123.2
|
487.3
|
497.6
|
||||||||||||
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Total operating expenses
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1,481.7
|
1,643.5
|
5,896.9
|
6,073.9
|
||||||||||||
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Operating income
|
574.2
|
462.7
|
1,894.3
|
1,645.5
|
||||||||||||
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Interest expense, net:
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||||||||||||||||
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Securitization funding costs
|
56.8
|
46.7
|
220.2
|
156.6
|
||||||||||||
|
Interest expense on deposits
|
50.0
|
37.2
|
165.7
|
125.1
|
||||||||||||
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Interest expense on long-term and other debt, net
|
70.0
|
72.5
|
284.7
|
282.7
|
||||||||||||
|
Total interest expense, net
|
176.8
|
156.4
|
670.6
|
564.4
|
||||||||||||
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Income before income tax
|
$
|
397.4
|
$
|
306.3
|
$
|
1,223.7
|
$
|
1,081.1
|
||||||||
|
Income tax expense
|
112.5
|
35.0
|
260.6
|
292.4
|
||||||||||||
|
Net income
|
$
|
284.9
|
$
|
271.3
|
$
|
963.1
|
$
|
788.7
|
||||||||
|
Per share data:
|
||||||||||||||||
|
Weighted average shares outstanding – basic
|
54.0
|
55.3
|
54.9
|
55.7
|
||||||||||||
|
Weighted average shares outstanding – diluted
|
54.2
|
55.6
|
55.1
|
55.9
|
||||||||||||
|
Basic – Net income
|
$
|
5.28
|
$
|
4.91
|
$
|
17.56
|
$
|
14.17
|
||||||||
|
Diluted – Net income
|
$
|
5.25
|
$
|
4.88
|
$
|
17.49
|
$
|
14.10
|
||||||||
7
Alliance Data Systems Corporation
February 7, 2019
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
(Unaudited)
|
December 31,
2018
|
December 31,
2017
|
|||||||
|
Assets
|
||||||||
|
Cash and cash equivalents
|
$
|
3,863.1
|
$
|
4,190.0
|
||||
|
Credit card and loan receivables:
|
||||||||
|
Credit card and loan receivables
|
17,855.0
|
18,613.8
|
||||||
|
Allowance for loan loss
|
(1,038.3
|
)
|
(1,119.3
|
)
|
||||
|
Credit card and loan receivables, net
|
16,816.7
|
17,494.5
|
||||||
|
Credit card and loan receivables held for sale
|
1,951.6
|
1,026.3
|
||||||
|
Redemption settlement assets, restricted
|
558.6
|
589.5
|
||||||
|
Intangible assets, net
|
539.7
|
800.6
|
||||||
|
Goodwill
|
3,841.0
|
3,880.1
|
||||||
|
Other assets
|
2,817.0
|
2,703.8
|
||||||
|
Total assets
|
$
|
30,387.7
|
$
|
30,684.8
|
||||
|
Liabilities and Stockholders’ Equity
|
||||||||
|
Deferred revenue
|
$
|
875.3
|
$
|
966.9
|
||||
|
Deposits
|
11,793.7
|
10,930.9
|
||||||
|
Non-recourse borrowings of consolidated securitization entities
|
7,651.7
|
8,807.3
|
||||||
|
Long-term and other debt
|
5,737.9
|
6,079.6
|
||||||
|
Other liabilities
|
1,997.0
|
2,044.8
|
||||||
|
Total liabilities
|
28,055.6
|
28,829.5
|
||||||
|
Stockholders’ equity
|
2,332.1
|
1,855.3
|
||||||
|
Total liabilities and stockholders’ equity
|
$
|
30,387.7
|
$
|
30,684.8
|
||||
8
Alliance Data Systems Corporation
February 7, 2019
ALLIANCE DATA SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
|
|
Year Ended
December 31,
|
|||||||
|
|
2018
|
2017 (1)
|
||||||
|
|
||||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net income
|
$
|
963.1
|
$
|
788.7
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Depreciation and amortization
|
487.3
|
497.6
|
||||||
|
Deferred income taxes
|
16.3
|
(113.8
|
)
|
|||||
|
Provision for loan loss
|
1,016.0
|
1,140.1
|
||||||
|
Non-cash stock compensation
|
80.8
|
75.1
|
||||||
|
Amortization of deferred financing costs
|
47.3
|
44.0
|
||||||
|
Change in operating assets and liabilities
|
(184.2
|
)
|
84.3
|
|||||
|
Originations of loan receivables held for sale
|
(4,799.0
|
)
|
(8,709.4
|
)
|
||||
|
Sales of loan receivables held for sale
|
4,928.8
|
8,651.9
|
||||||
|
Other
|
198.5
|
140.6
|
||||||
|
Net cash provided by operating activities
|
2,754.9
|
2,599.1
|
||||||
|
Cash Flows from Investing Activities:
|
||||||||
|
Change in redemption settlement assets
|
(42.2
|
)
|
(231.3
|
)
|
||||
|
Change in credit card and loan receivables
|
(2,749.6
|
)
|
(3,600.2
|
)
|
||||
|
Sale of credit card and loan portfolios
|
1,153.5
|
797.7
|
||||||
|
Payment for acquired business, net of cash acquired
|
—
|
(945.6
|
)
|
|||||
|
Capital expenditures
|
(199.8
|
)
|
(225.4
|
)
|
||||
|
Other
|
(33.9
|
)
|
(63.3
|
)
|
||||
|
Net cash used in investing activities
|
(1,872.0
|
)
|
(4,268.1
|
)
|
||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Borrowings under debt agreements
|
4,575.3
|
7,696.7
|
||||||
|
Repayments of borrowings
|
(4,893.0
|
)
|
(7,341.4
|
)
|
||||
|
Net increase in deposits
|
864.1
|
2,543.2
|
||||||
|
Non-recourse borrowings of consolidated securitization entities
|
3,714.6
|
5,172.5
|
||||||
|
Repayments/maturities of non-recourse borrowings of consolidated securitization entities
|
(4,871.0
|
)
|
(3,320.3
|
)
|
||||
|
Payment of deferred financing costs
|
(25.8
|
)
|
(65.7
|
)
|
||||
|
Purchase of treasury shares
|
(443.2
|
)
|
(553.7
|
)
|
||||
|
Dividends paid
|
(125.2
|
)
|
(115.5
|
)
|
||||
|
Other
|
(13.7
|
)
|
(10.9
|
)
|
||||
|
Net cash (used in) provided by financing activities
|
(1,217.9
|
)
|
4,004.9
|
|||||
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
(12.0
|
)
|
10.3
|
|||||
|
Change in cash, cash equivalents and restricted cash
|
(347.0
|
)
|
2,346.2
|
|||||
|
Cash, cash equivalents and restricted cash at beginning of period
|
4,314.7
|
1,968.5
|
||||||
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
3,967.7
|
$
|
4,314.7
|
||||
|
(1)
|
Adjusted to reflect the adoption of Accounting Standards Update (“ASU”) 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash.”
The effect of the adoption of the standard was to include restricted cash and restricted cash equivalents at the beginning-of-period and end-of-period cash and cash equivalents totals.
|
9
Alliance Data Systems Corporation
February 7, 2019
ALLIANCE DATA SYSTEMS CORPORATION
SUMMARY FINANCIAL HIGHLIGHTS
(In millions)
(Unaudited)
|
Three Months Ended December 31,
|
Year Ended
December 31,
|
|||||||||||||||||||||||
|
2018
|
2017
|
Change
|
2018
|
2017
|
Change
|
|||||||||||||||||||
|
Segment Revenue:
|
||||||||||||||||||||||||
|
LoyaltyOne
|
$
|
333.3
|
$
|
385.3
|
(13
|
)%
|
$
|
1,068.4
|
$
|
1,303.5
|
(18
|
)%
|
||||||||||||
|
Epsilon
|
613.9
|
640.3
|
(4
|
)
|
2,175.1
|
2,272.1
|
(4
|
)
|
||||||||||||||||
|
Card Services
|
1,131.1
|
1,087.0
|
4
|
4,597.6
|
4,170.6
|
10
|
||||||||||||||||||
|
Corporate/Other
|
0.2
|
0.6
|
nm*
|
0.6
|
0.6
|
nm*
|
||||||||||||||||||
|
Intersegment Eliminations
|
(22.6
|
)
|
(7.0
|
)
|
nm*
|
(50.5
|
)
|
(27.4
|
)
|
nm*
|
||||||||||||||
|
Total
|
$
|
2,055.9
|
$
|
2,106.2
|
(2
|
)%
|
$
|
7,791.2
|
$
|
7,719.4
|
1
|
%
|
||||||||||||
|
Segment Adjusted EBITDA, net:
|
||||||||||||||||||||||||
|
LoyaltyOne
|
$
|
67.4
|
$
|
80.3
|
(16
|
)%
|
$
|
254.2
|
$
|
256.7
|
(1
|
)%
|
||||||||||||
|
Epsilon
|
151.3
|
158.9
|
(5
|
)
|
475.1
|
475.7
|
—
|
|||||||||||||||||
|
Card Services
|
427.4
|
311.4
|
37
|
1,496.0
|
1,344.9
|
11
|
||||||||||||||||||
|
Corporate/Other
|
(37.8
|
)
|
(37.0
|
)
|
2
|
(145.5
|
)
|
(140.8
|
)
|
3
|
||||||||||||||
|
Total
|
$
|
608.3
|
$
|
513.6
|
18
|
%
|
$
|
2,079.8
|
$
|
1,936.5
|
7
|
%
|
||||||||||||
|
Key Performance Indicators:
|
||||||||||||||||||||||||
|
Credit sales
|
$
|
8,953
|
$
|
9,555
|
(6
|
)%
|
$
|
30,702
|
$
|
31,002
|
(1
|
)%
|
||||||||||||
|
Credit sales - active
|
$
|
8,194
|
$
|
7,698
|
6
|
%
|
$
|
26,909
|
$
|
24,036
|
12
|
%
|
||||||||||||
|
Average receivables
|
$
|
16,775
|
$
|
17,367
|
(3
|
)%
|
$
|
17,412
|
$
|
16,186
|
8
|
%
|
||||||||||||
|
Gross yield
|
23.6
|
%
|
23.6
|
%
|
—
|
%
|
24.5
|
%
|
24.9
|
%
|
(0.4
|
)%
|
||||||||||||
|
Net principal loss rate
|
5.5
|
%
|
6.0
|
%
|
(0.5
|
)%
|
6.1
|
%
|
6.0
|
%
|
0.1
|
%
|
||||||||||||
|
Delinquency rate
|
5.7
|
%
|
5.1
|
%
|
0.6
|
%
|
5.7
|
%
|
5.1
|
%
|
0.6
|
%
|
||||||||||||
|
AIR MILES reward miles issued
|
1,468
|
1,540
|
(5
|
)%
|
5,500
|
5,524
|
—
|
%
|
||||||||||||||||
|
AIR MILES reward miles redeemed
|
1,160
|
1,187
|
(2
|
)%
|
4,482
|
4,552
|
(2
|
)%
|
||||||||||||||||
* nm-not meaningful
10
Alliance Data Systems Corporation
February 7, 2019
ALLIANCE DATA SYSTEMS CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In millions, except per share amounts)
(Unaudited)
|
|
Three Months Ended December 31,
|
Year Ended
December 31,
|
||||||||||||||
|
|
2018
|
2017
|
2018
|
2017
|
||||||||||||
|
Adjusted EBITDA and Adjusted EBITDA, net:
|
||||||||||||||||
|
Net income
|
$
|
284.9
|
$
|
271.3
|
$
|
963.1
|
$
|
788.7
|
||||||||
|
Income tax expense
|
112.5
|
35.0
|
260.6
|
292.4
|
||||||||||||
|
Total interest expense, net
|
176.8
|
156.4
|
670.6
|
564.4
|
||||||||||||
|
Depreciation and other amortization
|
50.2
|
46.5
|
196.1
|
183.1
|
||||||||||||
|
Amortization of purchased intangibles
|
70.9
|
76.7
|
291.2
|
314.5
|
||||||||||||
|
Stock compensation expense
|
16.5
|
11.6
|
80.8
|
75.1
|
||||||||||||
|
Strategic transaction costs (1)
|
3.3
|
—
|
3.3
|
—
|
||||||||||||
|
Adjusted EBITDA
|
$
|
715.1
|
$
|
597.5
|
$
|
2,465.7
|
$
|
2,218.2
|
||||||||
|
Less: Funding costs (2)
|
106.8
|
83.9
|
385.9
|
281.7
|
||||||||||||
|
Adjusted EBITDA, net of funding costs
|
$
|
608.3
|
$
|
513.6
|
$
|
2,079.8
|
$
|
1,936.5
|
||||||||
|
Core Earnings:
|
||||||||||||||||
|
Net income
|
$
|
284.9
|
$
|
271.3
|
$
|
963.1
|
$
|
788.7
|
||||||||
|
Add back: non-cash/ non-operating items:
|
||||||||||||||||
|
Stock compensation expense
|
16.5
|
11.6
|
80.8
|
75.1
|
||||||||||||
|
Amortization of purchased intangibles
|
70.9
|
76.7
|
291.2
|
314.5
|
||||||||||||
|
Non-cash interest (3)
|
11.0
|
11.7
|
47.3
|
47.1
|
||||||||||||
|
Strategic transaction costs (1)
|
3.3
|
—
|
3.3
|
—
|
||||||||||||
|
Income tax effect (4)
|
(4.9
|
)
|
(23.1
|
)
|
(134.6
|
)
|
(143.5
|
)
|
||||||||
|
Core earnings
|
$
|
381.7
|
$
|
348.2
|
$
|
1,251.1
|
$
|
1,081.9
|
||||||||
|
Weighted average shares outstanding – diluted
|
54.2
|
55.6
|
55.1
|
55.9
|
||||||||||||
|
Core earnings per share – diluted
|
$
|
7.04
|
$
|
6.26
|
$
|
22.72
|
$
|
19.35
|
||||||||
|
(1)
|
Represents expenditures directly associated with strategic alternatives related to Epsilon.
|
|
(2)
|
Represents interest expense on deposits and securitization funding costs.
|
|
(3)
|
Represents amortization of debt issuance and hedging costs.
|
|
(4)
|
Represents the tax effect for the related non-GAAP measure adjustments using the effective tax rate for each respective period.
|
11
Alliance Data Systems Corporation
February 7, 2019
|
Three Months Ended December 31, 2018
|
||||||||||||||||||||
|
|
LoyaltyOne
|
Epsilon
|
Card
Services
|
Corporate/
Other
|
Total
|
|||||||||||||||
|
Operating income (loss)
|
$
|
45.1
|
$
|
70.8
|
$
|
506.3
|
$
|
(48.0
|
)
|
$
|
574.2
|
|||||||||
|
Depreciation and amortization
|
20.3
|
73.7
|
25.1
|
2.0
|
121.1
|
|||||||||||||||
|
Stock compensation expense
|
2.0
|
6.8
|
2.8
|
4.9
|
16.5
|
|||||||||||||||
|
Strategic transaction costs
|
—
|
—
|
—
|
3.3
|
3.3
|
|||||||||||||||
|
Adjusted EBITDA
|
67.4
|
151.3
|
534.2
|
(37.8
|
)
|
715.1
|
||||||||||||||
|
Less: Funding costs
|
—
|
—
|
106.8
|
—
|
106.8
|
|||||||||||||||
|
Adjusted EBITDA, net
|
$
|
67.4
|
$
|
151.3
|
$
|
427.4
|
$
|
(37.8
|
)
|
$
|
608.3
|
|||||||||
|
Three Months Ended December 31, 2017
|
||||||||||||||||||||
|
|
LoyaltyOne
|
Epsilon
|
Card
Services
|
Corporate/
Other
|
Total
|
|||||||||||||||
|
Operating income (loss)
|
$
|
57.7
|
$
|
77.4
|
$
|
370.2
|
$
|
(42.6
|
)
|
$
|
462.7
|
|||||||||
|
Depreciation and amortization
|
21.6
|
76.0
|
23.6
|
2.0
|
123.2
|
|||||||||||||||
|
Stock compensation expense
|
1.0
|
5.5
|
1.5
|
3.6
|
11.6
|
|||||||||||||||
|
Adjusted EBITDA
|
80.3
|
158.9
|
395.3
|
(37.0
|
)
|
597.5
|
||||||||||||||
|
Less: Funding costs
|
—
|
—
|
83.9
|
—
|
83.9
|
|||||||||||||||
|
Adjusted EBITDA, net
|
$
|
80.3
|
$
|
158.9
|
$
|
311.4
|
$
|
(37.0
|
)
|
$
|
513.6
|
|||||||||
|
Year Ended December 31, 2018
|
||||||||||||||||||||
|
|
LoyaltyOne
|
Epsilon
|
Card
Services
|
Corporate/
Other
|
Total
|
|||||||||||||||
|
Operating income (loss)
|
$
|
159.4
|
$
|
147.2
|
$
|
1,767.5
|
$
|
(179.8
|
)
|
$
|
1,894.3
|
|||||||||
|
Depreciation and amortization
|
84.8
|
293.7
|
101.1
|
7.7
|
487.3
|
|||||||||||||||
|
Stock compensation expense
|
10.0
|
34.2
|
13.3
|
23.3
|
80.8
|
|||||||||||||||
|
Strategic transaction costs
|
—
|
—
|
—
|
3.3
|
3.3
|
|||||||||||||||
|
Adjusted EBITDA
|
254.2
|
475.1
|
1,881.9
|
(145.5
|
)
|
2,465.7
|
||||||||||||||
|
Less: Funding costs
|
—
|
—
|
385.9
|
—
|
385.9
|
|||||||||||||||
|
Adjusted EBITDA, net
|
$
|
254.2
|
$
|
475.1
|
$
|
1,496.0
|
$
|
(145.5
|
)
|
$
|
2,079.8
|
|||||||||
|
Year Ended December 31, 2017
|
||||||||||||||||||||
|
|
LoyaltyOne
|
Epsilon
|
Card
Services
|
Corporate/
Other
|
Total
|
|||||||||||||||
|
Operating income (loss)
|
$
|
167.0
|
$
|
134.5
|
$
|
1,517.4
|
$
|
(173.4
|
)
|
$
|
1,645.5
|
|||||||||
|
Depreciation and amortization
|
81.7
|
309.7
|
98.4
|
7.8
|
497.6
|
|||||||||||||||
|
Stock compensation expense
|
8.0
|
31.5
|
10.8
|
24.8
|
75.1
|
|||||||||||||||
|
Adjusted EBITDA
|
256.7
|
475.7
|
1,626.6
|
(140.8
|
)
|
2,218.2
|
||||||||||||||
|
Less: Funding costs
|
—
|
—
|
281.7
|
—
|
281.7
|
|||||||||||||||
|
Adjusted EBITDA, net
|
$
|
256.7
|
$
|
475.7
|
$
|
1,344.9
|
$
|
(140.8
|
)
|
$
|
1,936.5
|
|||||||||
12
Alliance Data NYSE: ADS Full Year 2018 ResultsFebruary 7, 2019 Exhibit 99.2
11 2 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 strategic evaluations, potential transactions and the use of expected proceeds thereof, our
expected operating results, future economic conditions including currency exchange rates, future dividend declarations and the guidance we give with respect to our anticipated financial performance. 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. Further risks and uncertainties include, but are not limited to,
the structure and timing of any transaction involving Epsilon, whether and on what terms a transaction will be completed, the possibility that closing conditions for a transaction may not be satisfied or waived, the impact of our strategic
evaluations and any transaction on us or our business if a transaction is completed, and whether the benefits of a transaction can be achieved.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.
Agenda Speakers: Ed Heffernan President and CEO Charles Horn EVP and CFO Consolidated ResultsSegment
Results2019 Outlook2019 Guidance 1 3
2018 Consolidated Results(MM, except per share) 2 4 Year Ended December 31, 2018 2017 %
Change Revenue $7,791 $7,719 +1% Pro forma revenue1 $8,075 $7,719 +5% Net income $963 $789 +22% EPS $17.49 $14.10 +24% Core EPS $22.72 $19.35 +17% Adjusted EBITDA $2,466 $2,218 +11% Adjusted
EBITDA, net $2,080 $1,937 +7% Diluted shares outstanding 55.1 55.9 1 ASC 606 revenue recognition, which became effective January 1, 2018, requires a net revenue recognition (gross revenue less cost of goods) for
travel-related redemptions at AIR MILES®. This new presentation lowers reported revenue but does not impact net income, EPS or core EPS.
Year Ended December 31, 2018 2017 % Change Revenue:
LoyaltyOne® $1,068 $1,304 ASC 606 adjustment 284 -- Change to net revenue presentation Pro forma 1,352 1,304 +4% Epsilon® 2,175 2,272 -4% Card Services 4,598 4,171 +10%
Other (50) (28) $8,075 $7,719 +5% Adjusted EBITDA, net: LoyaltyOne $254 $257 -1% Epsilon 475 476 0% Card Services 1,496 1,345 +11% Other (145) (141)
$2,080 $1,937 +7% 2018 Segment Results(MM) 5 Corporate leverage ratio 2.28x 2.73x
6 2018 Full Year 6 Non-Card SegmentsEpsilon:$2.2 billion in revenue, $475 million in adjusted
EBITDAMix of growing, stable and declining productsAgency and site-based display offerings are in declineShift in product mix driving margin improvementLoyaltyOne:$1.4 billion in pro forma revenue, $254 million in adjusted EBITDABrandLoyalty
revenue up double-digits, while AIR MILES revenue down slightlyAdjusted EBITDA essentially flat with prior year (BrandLoyalty expenses higher than expected)AIR MILES issued flat with prior year (certain fourth quarter promotions pushed to Q1
’19)
2018 Full Year 7 Card Services SegmentRevenue of $4.6 billion and adjusted EBITDA, net of $1.5
billionDouble-digit revenue and adjusted EBITDA, net growthRecord number of new client signings (2x historical)All in growth verticals where we have proven track record of winning (home décor, children’s, beauty)Tender share remains strongGains
in 2015+ vintages of approximately 120 basis points year-over-year with significant runway for growthCore vintage (2014 and prior) continues in mid-30 percent rangeCredit quality stable (~6 percent)Similar to prior yearNo consumer distress
detectedMove towards more attractive clients and verticals largely completed in fourth quarterApproximately $2.1 billion of card receivables either sold or moved to held-for-sale during 2018 Reported average receivables growth of 8 percent
compared to active growth of 23 percent
Year Ended December 31, 2018 2017 Change Credit sales $30,702 $31,002 -1% Average
card receivables $17,412 $16,186 +8% Normalized average card receivables 1 $18,729 $16,775 +12% Total gross yield (revenue/normalized average card receivables) 24.5% 24.9% -0.3% Operating expenses as % of normalized average
card receivables 2 9.1% 8.4% +0.7% Principal loss rates 6.1% 6.0% +0.1% Delinquency rate 5.7% 5.1% +0.6% Return on equity 34% 30% +4% 2018 Full Year – Credit Metrics 1 Includes held-for-sale receivables. Drives revenue
and operating expenses.2 Mark-to-market on held-for-sale receivables increased this metric by approximately 60 basis points. 8
Card Services: Average Receivables Growth 9 Reported growth of +8%Includes impact of discontinued
programsActive client growth of +23% +23% Active Clients: + Discontinued programs: = Reported: $16.2bn $17.4bn +8% $15.6bn $3.6bn $1.8bn ~30% from newer signings (2015-2018); ~200% growth
Card Services: End of Year Receivables Billion $17.9 $2.1removed 7 year CAGR of 18% Long-term
growth of 18 percent compared to 3 percent industry revolving debt growth even with the discontinued programs in 2018Consistent ROE’s > than 30 percent or 2-3x industry 10
6 11 Card Services: Principal Loss Rates 2005 - 2007~ 6% At Trend Below Trend 2016~ 5% 2017 ‐
2018~ 6% At Trend Loss rates have now returned to trend
Non-Card Segments:Status-quo: mid single-digit growth in revenue and adjusted EBITDACard Services:Exit
2019 at $20.5 billion in card receivables compared to $17.9 billion at 2018 year-end, or 15 percent growthNew vintages (clients signings from 2015-2019) to account for over 40 percent of receivables The 2019 vintage assumes a modicum of growth
from converted portfoliosContinue transition to more attractive clients and verticals (e.g., home décor, children’s, beauty) newer clients maintain similar ROE dynamicsCredit quality stable to prior two yearsPrincipal loss rate of approximately
6 percentDelinquency rates expected to stabilize as year progressesStrong year dampened in first-half from disposition of certain card receivables 2019 Outlook 12
13 2019 Outlook Epsilon Divestiture:2018: Strategic reviewHire investment bankers and lawyersMove to
formal process2019:Initial bids receivedCurrently finishing selection of final biddersProcess moving smoothly; if consummated, use of proceeds focused on further debt reduction and share repurchases
2019 Guidance 14 Initial Annual Guidance: $8.1 billion in revenue; $22.00 in core EPSStrong growth
expected in ending card receivables creates substantial provision buildCard receivables growth is considerably weighted towards back-half of yearFirst Quarter: Revenue down mid single-digits; core EPS down high single-digitsAssumes status quo;
no reclassification of Epsilon to discontinued operationsNormalized average card receivables down year-over-year due to strategic repositioning at Card Services Guidance will be adjusted throughout yearEpsilon divestureUse of proceedsAccounting
treatmentSummaryDivestiture of certain card receivables creates near-term headwinds (lower normalized average receivables growth in first-half of 2019)Repositioning creates stronger client base moving forwardStrong double-digit growth in active
client card receivables for yearGap between reported receivables and active receivables growth to narrow by year-endCredit quality stableROE > 30 percent; newer clients maintain similar dynamicsEpsilon divestiture simplifies narrative and
creates value for shareholders
12 15 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, 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. 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, strategic transaction costs, amortization of debt issuance and hedging costs. 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. Reconciliations to comparable GAAP financial measures are available in the Company’s earnings release, which is posted in both the News and
Investors sections on the Company’s website (www.alliancedata.com). No reconciliation is provided with respect to forward-looking annual guidance for 2019 core EPS as the Company cannot reliably predict all necessary components or their impact
to reconcile core EPS to GAAP EPS without unreasonable effort. 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.
