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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[ ]
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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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[x]
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act
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Exhibit No.
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Document Description
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Press Release dated July 18, 2019 announcing the results of operations for the second quarter ended June 30, 2019.
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Investor Presentation Materials.
|
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Alliance Data Systems Corporation
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||
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Date: July 18, 2019
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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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Contacts:
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UInvestors/Analysts
|
Tiffany Louder
|
|
Alliance Data
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|
214-494-3048
|
|
Tiffany.Louder@alliancedata.com
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UMedia
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Shelley Whiddon
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Alliance Data
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214-494-3811
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Shelley.Whiddon@alliancedata.com
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•
|
Epsilon® Sale to Publicis Groupe Completed; Company Continues to Execute
on Business Strategy Shift
|
•
|
Modified Dutch Auction to Purchase $700 to $750 Million of Common Stock
Anticipated to Launch in the Near-term
|
•
|
Company Acquires over $900 Million in New Credit Card Portfolios;
Temporarily Pressures Q2 Performance
|
SUMMARY
|
Quarter Ended June 30,
|
||||||||||||
(in millions, except per share amounts)
|
2019
|
2018
|
% Change
|
||||||||||
Revenue
|
$
|
1,348
|
$
|
1,397
|
-3
|
%
|
|||||||
Income from continuing operations
|
$
|
142
|
$
|
224
|
-36
|
%
|
|||||||
Net income
|
$
|
139
|
$
|
218
|
-36
|
%
|
|||||||
Income from continuing operations per diluted share (“EPS”)
|
$
|
2.71
|
$
|
4.04
|
-33
|
%
|
|||||||
Net income per diluted share
|
$
|
2.64
|
$
|
3.93
|
-33
|
%
|
|||||||
Diluted shares outstanding
|
52.6
|
55.4
|
|||||||||||
*******************************
|
|
||||||||||||
Supplemental Non-GAAP Metrics (a):
|
|||||||||||||
Adjusted EBITDA
|
$
|
414
|
$
|
457
|
-9
|
%
|
|||||||
Adjusted EBITDA, net of funding costs
(“adjusted EBITDA, net”)
|
$
|
310
|
$
|
365
|
-15
|
%
|
|||||||
Core earnings per diluted share (“core EPS”)
|
$
|
3.83
|
$
|
4.37
|
-12
|
%
|
(a)
|
See “Financial Measures” for a discussion of non-GAAP financial measures.
|
Quarter Ended June 30,
|
||||||||||||
(in millions)
|
2019
|
2018
|
% Change
|
|||||||||
Revenue:
|
||||||||||||
LoyaltyOne
|
$
|
251
|
$
|
249
|
+1
|
%
|
||||||
Card Services
|
$
|
1,097
|
$
|
1,148
|
-4
|
%
|
||||||
Total revenue
|
$
|
1,348
|
$
|
1,397
|
-3
|
%
|
||||||
Adjusted EBITDA, net:
|
||||||||||||
LoyaltyOne
|
$
|
51
|
$
|
69
|
-27
|
%
|
||||||
Card Services
|
$
|
287
|
$
|
336
|
-14
|
%
|
||||||
Corporate/other
|
$
|
(28
|
)
|
$
|
(40
|
)
|
||||||
Total adjusted EBITDA, net
|
$
|
310
|
$
|
365
|
-15
|
%
|
||||||
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Revenue
|
$
|
1,348.5
|
$
|
1,397.2
|
$
|
2,682.7
|
$
|
2,778.9
|
|||||||||
Operating expenses:
|
|||||||||||||||||
Cost of operations
|
712.1
|
640.0
|
1,390.8
|
1,263.0
|
|||||||||||||
Provision for loan loss
|
257.3
|
311.9
|
509.5
|
649.6
|
|||||||||||||
Depreciation and amortization
|
41.8
|
48.6
|
88.2
|
97.4
|
|||||||||||||
Total operating expenses
|
1,011.2
|
1,000.5
|
1,988.5
|
2,010.0
|
|||||||||||||
Operating income
|
337.3
|
396.7
|
694.2
|
768.9
|
|||||||||||||
Interest expense, net:
|
|||||||||||||||||
Securitization funding costs
|
51.6
|
55.2
|
108.8
|
107.3
|
|||||||||||||
Interest expense on deposits
|
53.2
|
36.8
|
102.0
|
72.3
|
|||||||||||||
Interest expense on long-term and other debt, net
|
38.7
|
41.6
|
76.6
|
81.1
|
|||||||||||||
Total interest expense, net
|
143.5
|
133.6
|
287.4
|
260.7
|
|||||||||||||
Income from continuing operations before income taxes
|
$
|
193.8
|
$
|
263.1
|
$
|
406.8
|
$
|
508.2
|
|||||||||
Income tax expense
|
51.4
|
39.3
|
86.1
|
104.5
|
|||||||||||||
Income from continuing operations
|
142.4
|
223.8
|
320.7
|
403.7
|
|||||||||||||
Loss from discontinued operations, net of taxes (1)
|
(3.4
|
)
|
(6.0
|
)
|
(32.6
|
)
|
(21.9
|
)
|
|||||||||
Net income
|
$
|
139.0
|
$
|
217.8
|
$
|
288.1
|
$
|
381.8
|
|||||||||
Per share data:
|
|||||||||||||||||
Weighted average shares outstanding – basic
|
51.3
|
55.2
|
52.1
|
55.3
|
|||||||||||||
Weighted average shares outstanding – diluted
|
52.6
|
55.4
|
52.9
|
55.5
|
|||||||||||||
Basic – Income from continuing operations
|
$
|
2.76
|
$
|
4.05
|
$
|
6.13
|
$
|
7.30
|
|||||||||
Basic – Loss from discontinued operations
|
(0.07
|
)
|
(0.11
|
)
|
(0.62
|
)
|
(0.40
|
)
|
|||||||||
Basic – Net income
|
$
|
2.69
|
$
|
3.94
|
$
|
5.51
|
$
|
6.90
|
|||||||||
Diluted – Income from continuing operations
|
$
|
2.71
|
$
|
4.04
|
$
|
6.07
|
$
|
7.27
|
|||||||||
Diluted – Loss from discontinued operations
|
(0.07
|
)
|
(0.11
|
)
|
(0.62
|
)
|
(0.40
|
)
|
|||||||||
Diluted – Net income
|
$
|
2.64
|
$
|
3.93
|
$
|
5.45
|
$
|
6.87
|
|||||||||
(1)
|
Includes the allocation of interest expense associated with the Company’s $500.0 million mandatory repayment of its revolving credit facility and $1.9 billion in senior notes outstanding. On April 30, 2019, the Company amended its credit
agreement, which among other items, provided that upon consummation of the sale of Epsilon, a mandatory payment of $500.0 million of the revolving credit facility was required and all of the Company’s $1.9 billion outstanding senior notes
were required to be redeemed.
|
June 30,
2019
|
December 31,
2018
|
|||||||
Assets
|
||||||||
Cash and cash equivalents
|
$
|
4,026.8
|
$
|
3,817.4
|
||||
Credit card and loan receivables:
|
||||||||
Credit card and loan receivables
|
17,614.5
|
17,855.0
|
||||||
Allowance for loan loss
|
(1,010.9
|
)
|
(1,038.3
|
)
|
||||
Credit card and loan receivables, net
|
16,603.6
|
16,816.7
|
||||||
Credit card receivables held for sale
|
1,834.3
|
1,951.6
|
||||||
Redemption settlement assets, restricted
|
594.0
|
558.6
|
||||||
Right of use assets - operating
|
268.4
|
—
|
||||||
Intangible assets, net
|
195.8
|
217.4
|
||||||
Goodwill
|
960.3
|
954.8
|
||||||
Other assets
|
1,992.2
|
1,913.8
|
||||||
Assets of discontinued operations
|
4,264.3
|
4,157.4
|
||||||
Total assets
|
$
|
30,739.7
|
$
|
30,387.7
|
||||
Liabilities and Stockholders’ Equity
|
||||||||
Deferred revenue
|
$
|
902.7
|
$
|
875.3
|
||||
Deposits
|
12,534.7
|
11,793.7
|
||||||
Non-recourse borrowings of consolidated securitization entities
|
6,727.0
|
7,651.7
|
||||||
Long-term and other debt
|
5,825.6
|
5,725.4
|
||||||
Operating lease liabilities
|
318.8
|
—
|
||||||
Other liabilities
|
1,687.8
|
1,749.1
|
||||||
Liabilities of discontinued operations
|
351.4
|
260.4
|
||||||
Total liabilities
|
28,348.0
|
28,055.6
|
||||||
Stockholders’ equity
|
2,391.7
|
2,332.1
|
||||||
Total liabilities and stockholders’ equity
|
$
|
30,739.7
|
$
|
30,387.7
|
||||
|
Six Months Ended
June 30,
|
||||||||
|
2019
|
2018
|
|||||||
|
|||||||||
Cash Flows from Operating Activities:
|
|||||||||
Net income
|
$
|
288.1
|
$
|
381.8
|
|||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
|||||||||
Depreciation and amortization
|
161.5
|
243.7
|
|||||||
Deferred income taxes
|
(47.6
|
)
|
(82.0
|
)
|
|||||
Provision for loan loss
|
509.5
|
649.6
|
|||||||
Non-cash stock compensation
|
51.3
|
46.3
|
|||||||
Amortization of deferred financing costs
|
22.1
|
25.5
|
|||||||
Change in operating assets and liabilities
|
(38.3
|
)
|
(87.1
|
)
|
|||||
Originations of loan receivables held for sale
|
—
|
(4,743.4
|
)
|
||||||
Sales of loan receivables held for sale
|
—
|
4,791.9
|
|||||||
Other
|
143.1
|
95.5
|
|||||||
Net cash provided by operating activities
|
1,089.7
|
1,321.8
|
|||||||
Cash Flows from Investing Activities:
|
|||||||||
Change in redemption settlement assets
|
(2.0
|
)
|
(39.7
|
)
|
|||||
Change in credit card and loan receivables
|
(20.9
|
)
|
(121.2
|
)
|
|||||
Purchase of credit card portfolios
|
(936.5
|
)
|
—
|
||||||
Sale of credit card portfolios
|
539.3
|
55.6
|
|||||||
Capital expenditures
|
(92.2
|
)
|
(98.5
|
)
|
|||||
Other
|
(2.0
|
)
|
(32.4
|
)
|
|||||
Net cash used in investing activities
|
(514.3
|
)
|
(236.2
|
)
|
|||||
Cash Flows from Financing Activities:
|
|||||||||
Borrowings under debt agreements
|
2,077.3
|
2,399.1
|
|||||||
Repayments of borrowings
|
(1,974.8
|
)
|
(2,678.5
|
)
|
|||||
Net increase (decrease) in deposits
|
742.8
|
(373.2
|
)
|
||||||
Non-recourse borrowings of consolidated securitization entities
|
2,193.3
|
1,475.0
|
|||||||
Repayments/maturities of non-recourse borrowings of consolidated securitization entities
|
(3,117.2
|
)
|
(2,510.0
|
)
|
|||||
Payment of deferred financing costs
|
(18.8
|
)
|
(7.8
|
)
|
|||||
Purchase of treasury shares
|
(222.8
|
)
|
(94.5
|
)
|
|||||
Dividends paid
|
(67.0
|
)
|
(63.3
|
)
|
|||||
Other
|
(9.4
|
)
|
(15.8
|
)
|
|||||
Net cash used in financing activities
|
(396.6
|
)
|
(1,869.0
|
)
|
|||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
8.2
|
(4.1
|
)
|
||||||
Change in cash, cash equivalents and restricted cash
|
187.0
|
(787.5
|
)
|
||||||
Cash, cash equivalents and restricted cash at beginning of period
|
3,967.7
|
4,314.7
|
|||||||
Cash, cash equivalents and restricted cash at end of period
|
$
|
4,154.7
|
$
|
3,527.2
|
|||||
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||||||||||
2019
|
2018
|
Change
|
2019
|
2018
|
Change
|
|||||||||||||||||||
Segment Revenue:
|
||||||||||||||||||||||||
LoyaltyOne
|
$
|
251.5
|
$
|
248.6
|
1
|
%
|
$
|
455.3
|
$
|
474.9
|
(4
|
)%
|
||||||||||||
Card Services
|
1,096.9
|
1,148.5
|
(4
|
)
|
2,227.3
|
2,303.7
|
(3
|
)
|
||||||||||||||||
Corporate/Other
|
0.1
|
0.1
|
nm*
|
0.1
|
0.3
|
nm*
|
||||||||||||||||||
Total
|
$
|
1,348.5
|
$
|
1,397.2
|
(3
|
)%
|
$
|
2,682.7
|
$
|
2,778.9
|
(3
|
)%
|
||||||||||||
Segment Adjusted EBITDA, net:
|
||||||||||||||||||||||||
LoyaltyOne
|
$
|
51.0
|
$
|
69.5
|
(27
|
)%
|
$
|
106.1
|
$
|
123.4
|
(14
|
)%
|
||||||||||||
Card Services
|
287.2
|
335.7
|
(14
|
)
|
582.1
|
654.3
|
(11
|
)
|
||||||||||||||||
Corporate/Other
|
(28.6
|
)
|
(39.9
|
)
|
(28
|
)
|
(62.0
|
)
|
(65.4
|
)
|
(5
|
)
|
||||||||||||
Total
|
$
|
309.6
|
$
|
365.3
|
(15
|
)%
|
$
|
626.2
|
$
|
712.3
|
(12
|
)%
|
||||||||||||
Key Performance Indicators:
|
||||||||||||||||||||||||
Credit sales
|
$
|
7,551
|
$
|
7,568
|
—
|
%
|
$
|
13,867
|
$
|
14,373
|
(4
|
)%
|
||||||||||||
Credit sales - active
|
$
|
6,675
|
$
|
6,157
|
8
|
%
|
$
|
12,220
|
$
|
11,460
|
7
|
%
|
||||||||||||
Average receivables
|
$
|
16,798
|
$
|
17,570
|
(4
|
)%
|
$
|
16,824
|
$
|
17,646
|
(5
|
)%
|
||||||||||||
Gross yield
|
23.9
|
%
|
24.9
|
%
|
(0.9
|
)%
|
24.0
|
%
|
24.8
|
%
|
(0.8
|
)%
|
||||||||||||
Net principal loss rate
|
6.1
|
%
|
6.4
|
%
|
(0.3
|
)%
|
6.3
|
%
|
6.6
|
%
|
(0.3
|
)%
|
||||||||||||
Delinquency rate
|
5.2
|
%
|
5.5
|
%
|
(0.3
|
)%
|
5.2
|
%
|
5.5
|
%
|
(0.3
|
)%
|
||||||||||||
AIR MILES reward miles issued
|
1,423
|
1,445
|
(2
|
)%
|
2,681
|
2,671
|
—
|
%
|
||||||||||||||||
AIR MILES reward miles redeemed
|
1,050
|
1,068
|
(2
|
)%
|
2,139
|
2,246
|
(5
|
)%
|
||||||||||||||||
|
Three Months Ended
June 30,
|
Six Months Ended
June 30,
|
|||||||||||||||
|
2019
|
2018
|
2019
|
2018
|
|||||||||||||
Adjusted EBITDA and Adjusted EBITDA, net:
|
|||||||||||||||||
Income from continuing operations
|
$
|
142.4
|
$
|
223.8
|
$
|
320.7
|
$
|
403.7
|
|||||||||
Income tax expense
|
51.4
|
39.3
|
86.1
|
104.5
|
|||||||||||||
Total interest expense, net
|
143.5
|
133.6
|
287.4
|
260.7
|
|||||||||||||
Depreciation and other amortization
|
19.3
|
19.8
|
39.9
|
39.1
|
|||||||||||||
Amortization of purchased intangibles
|
22.5
|
28.8
|
48.3
|
58.3
|
|||||||||||||
Stock compensation expense
|
10.2
|
12.0
|
21.6
|
25.6
|
|||||||||||||
Strategic transaction costs (1)
|
2.7
|
—
|
2.7
|
—
|
|||||||||||||
Restructuring charges (2)
|
22.4
|
—
|
30.3
|
—
|
|||||||||||||
Adjusted EBITDA
|
$
|
414.4
|
$
|
457.3
|
$
|
837.0
|
$
|
891.9
|
|||||||||
Less: Funding costs (3)
|
104.8
|
92.0
|
210.8
|
179.6
|
|||||||||||||
Adjusted EBITDA, net of funding costs
|
$
|
309.6
|
$
|
365.3
|
$
|
626.2
|
$
|
712.3
|
|||||||||
Core Earnings:
|
|||||||||||||||||
Income from continuing operations
|
$
|
142.4
|
$
|
223.8
|
$
|
320.7
|
$
|
403.7
|
|||||||||
Add back: non-cash/ non-operating items:
|
|||||||||||||||||
Stock compensation expense
|
10.2
|
12.0
|
21.6
|
25.6
|
|||||||||||||
Amortization of purchased intangibles
|
22.5
|
28.8
|
48.3
|
58.3
|
|||||||||||||
Non-cash interest (4)
|
9.5
|
12.4
|
18.7
|
22.0
|
|||||||||||||
Strategic transaction costs (1)
|
2.7
|
—
|
2.7
|
—
|
|||||||||||||
Restructuring charges (2)
|
22.4
|
—
|
30.3
|
—
|
|||||||||||||
Income tax effect (5)
|
(8.3
|
)
|
(34.9
|
)
|
(39.1
|
)
|
(44.2
|
)
|
|||||||||
Core earnings
|
$
|
201.4
|
$
|
242.1
|
$
|
403.2
|
$
|
465.4
|
|||||||||
Weighted average shares outstanding – diluted
|
52.6
|
55.4
|
52.9
|
55.5
|
|||||||||||||
Core earnings per share – diluted
|
$
|
3.83
|
$
|
4.37
|
$
|
7.62
|
$
|
8.38
|
|||||||||
(1)
|
Represents costs for professional services associated with strategic initiatives.
|
(2)
|
Represents costs associated with the wind-down of Merison, a retail marketing division within BrandLoyalty, in the first quarter of 2019 and a reorganization of Corporate, resulting from the sale of Epsilon.
|
(3)
|
Represents interest expense on deposits and securitization funding costs.
|
(4)
|
Represents amortization of debt issuance costs.
|
(5)
|
Represents the tax effect including the related non-GAAP measure adjustments using the expected effective annual tax rate.
|
Three Months Ended June 30, 2019
|
||||||||||||||||
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
Operating income (loss)
|
$
|
28.3
|
$
|
367.6
|
$
|
(58.6
|
)
|
$
|
337.3
|
|||||||
Depreciation and amortization
|
19.6
|
20.8
|
1.4
|
41.8
|
||||||||||||
Stock compensation expense
|
2.9
|
3.6
|
3.7
|
10.2
|
||||||||||||
Strategic transaction costs
|
0.2
|
—
|
2.5
|
2.7
|
||||||||||||
Restructuring charges
|
—
|
—
|
22.4
|
22.4
|
||||||||||||
Adjusted EBITDA
|
51.0
|
392.0
|
(28.6
|
)
|
414.4
|
|||||||||||
Less: Funding costs
|
—
|
104.8
|
—
|
104.8
|
||||||||||||
Adjusted EBITDA, net
|
$
|
51.0
|
$
|
287.2
|
$
|
(28.6
|
)
|
$
|
309.6
|
Three Months Ended June 30, 2018
|
||||||||||||||||
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
Operating income (loss)
|
$
|
45.6
|
$
|
399.3
|
$
|
(48.2
|
)
|
$
|
396.7
|
|||||||
Depreciation and amortization
|
21.5
|
25.3
|
1.8
|
48.6
|
||||||||||||
Stock compensation expense
|
2.4
|
3.1
|
6.5
|
12.0
|
||||||||||||
Adjusted EBITDA
|
69.5
|
427.7
|
(39.9
|
)
|
457.3
|
|||||||||||
Less: Funding costs
|
—
|
92.0
|
—
|
92.0
|
||||||||||||
Adjusted EBITDA, net
|
$
|
69.5
|
$
|
335.7
|
$
|
(39.9
|
)
|
$
|
365.3
|
Six Months Ended June 30, 2019
|
||||||||||||||||
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
Operating income (loss)
|
$
|
52.4
|
$
|
740.5
|
$
|
(98.7
|
)
|
$
|
694.2
|
|||||||
Depreciation and amortization
|
39.8
|
45.0
|
3.4
|
88.2
|
||||||||||||
Stock compensation expense
|
5.8
|
7.4
|
8.4
|
21.6
|
||||||||||||
Strategic transaction costs
|
0.2
|
—
|
2.5
|
2.7
|
||||||||||||
Restructuring charges
|
7.9
|
—
|
22.4
|
30.3
|
||||||||||||
Adjusted EBITDA
|
106.1
|
792.9
|
(62.0
|
)
|
837.0
|
|||||||||||
Less: Funding costs
|
—
|
210.8
|
—
|
210.8
|
||||||||||||
Adjusted EBITDA, net
|
$
|
106.1
|
$
|
582.1
|
$
|
(62.0
|
)
|
$
|
626.2
|
Six Months Ended June 30, 2018
|
||||||||||||||||
|
LoyaltyOne
|
Card
Services
|
Corporate/
Other
|
Total
|
||||||||||||
Operating income (loss)
|
$
|
74.0
|
$
|
776.2
|
$
|
(81.3
|
)
|
$
|
768.9
|
|||||||
Depreciation and amortization
|
43.5
|
50.1
|
3.8
|
97.4
|
||||||||||||
Stock compensation expense
|
5.9
|
7.6
|
12.1
|
25.6
|
||||||||||||
Adjusted EBITDA
|
123.4
|
833.9
|
(65.4
|
)
|
891.9
|
|||||||||||
Less: Funding costs
|
—
|
179.6
|
—
|
179.6
|
||||||||||||
Adjusted EBITDA, net
|
$
|
123.4
|
$
|
654.3
|
$
|
(65.4
|
)
|
$
|
712.3
|