Alliance Data Reports Second Quarter 2021 Results

– Net income of $273 million, or $5.47 per diluted share
– Strong credit management and more favorable economic outlook drove a net reserve release of $208 million
– Credit sales returned to pre-pandemic levels as we exited the quarter
– Credit sales trends align with expectation of strong 2022 receivables growth
– Successful execution of strategic initiatives, including launch of Bread/Fiserv relationship
– Previously announced spinoff of LoyaltyOne® remains on track for year-end completion

Alliance Data Systems Corporation , a leading provider of data-driven marketing, loyalty and payment solutions, announced results for the quarter ended June 30, 2021.

“Alliance Data’s second quarter results highlight considerable progress in the transformation of our company, driven by efficient execution across our portfolio, together with improving business conditions,” said Ralph Andretta, president and chief executive officer of Alliance Data. “Credit sales returned to pre-pandemic levels as we exited the quarter, as retailers experienced robust omnichannel shopping and engagement aligned with improved consumer confidence and mobility.  While reopening efforts are progressing in the U.S., we are experiencing a more gradual recovery both in Canada and internationally.  We continue to maintain a favorable outlook for the LoyaltyOne segment given pipeline and activity level improvement.  AIR MILES® reward miles redeemed and average flight bookings per day significantly increased in June while BrandLoyalty’s new campaign pipeline strengthened, indicating more robust growth in the second half of 2021.

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“Credit performance remained strong, reflecting our disciplined risk management and the ongoing impact of economic stimulus resulting in increased customer liquidity and greater ability to pay.  Our net loss rate remains well below our historic average rate of 6.0% and our delinquency rate was exceptionally low at 3.3%.  We expect credit metrics and payment rates to begin to normalize as stimulus programs wind down in the latter half of the year.

“Business development was robust during the second quarter, highlighted by a number of new partner signings, multiple renewals, and a growing pipeline of high-quality prospects.  We continue to expand Bread’s direct acquisition merchant partners as well as enlisting existing card brand partners to launch on Bread’s platform.  The e-commerce pilot for the Bread and Fiserv strategic relationship went live at quarter-end. Select merchant launches from Fiserv’s extensive merchant network will be staggered throughout the second half of 2021 and a full roll-out planned for 2022.  We expect Alliance Data’s differentiated full-spectrum lending capabilities and broad product suite to drive strong growth in 2022 and beyond.

“In June, we released our 2020 Environmental, Social and Governance (“ESG”) performance report highlighting the progress we have made over the past three-years.  Our ESG strategy is a key component of our business transformation, which prioritizes delivering long-term sustainable stakeholder value, modernizing technology, advancing a diverse and inclusive culture, and maintaining a commitment to ethical decision making.  These priorities are embedded in the Company’s business practices and corporate governance, and will help drive the long-term success of Alliance Data.”

2021 OUTLOOK

“First half results represent a strong foundation on which to build continued revenue growth, as receivables gain traction and LoyaltyOne activity increases in the second half of this year. We remain keenly focused on the execution of our strategy, focused on balancing growth and profitability to ensure the sustainable economics of our portfolio.

“Assuming continued strength in the U.S. economy, we are increasing our 2021 credit sales forecast to a double-digit growth rate and now expect a net loss rate in the low 5% range for the year,” said Mr. Andretta.  “Based on our current visibility and payment rate expectations, receivables at year-end 2021 are projected to be in line with year-end 2020 levels, although average receivables are expected to be down mid-single-digits for the year, reflecting the year-over-year pressure in the first half of 2021 and elevated payment rates.  We expect to resume high-single-digit to low-double-digit average receivables growth in 2022.  Total revenue for the year is anticipated to be down low-single-digits compared to 2020 as the impact from lower receivables is partially offset by improving revenue from LoyaltyOne and the Bread acquisition.  We expect efficiencies to enable us to keep total expenses, excluding provision for loan loss, flat year-over-year while we continue to fund initiatives to position the company for future growth.  In 2021, we are investing over $100 million in digital innovation and technology enhancements and $50 million in marketing to support growth and a return to positive operating leverage in 2022.

“We remain on track for the successful spinoff of our LoyaltyOne segment, with completion expected by year-end 2021, positioning both companies to pursue their respective unique growth opportunities and build long-term stockholder value.”

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CONSOLIDATED RESULTS

SUMMARY

Quarter Ended June 30,

(in millions, except per share amounts)

2021

2020

Change

Revenue

$1,012

$979

3%

Income before income taxes (“EBT”)

$372

$47

691%

Net income

$273

$38

612%

Net income per diluted share

$5.47

$0.81

575%

Weighted average shares outstanding – diluted

50.0

47.7

**********************************

Supplemental Non-GAAP Metrics (a):

  Pre-provision, pre-tax earnings

$358

$297

20%

(a)  See “Financial Measures” for a discussion of non-GAAP Financial Measures.

Second Quarter: Consolidated revenue increased 3% to $1,012 million compared to the second quarter of 2020, resulting from the ongoing consumer recovery from pandemic lows.  EBT increased 691% to $372 million, positively impacted by a net reserve release of $208 million during the second quarter of 2021.  Net income was $273 million, or $5.47 per diluted share.

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SEGMENT RESULTS

Card Services: Revenue increased 4% to $861 million compared to the second quarter of 2020, primarily due to the impact from pandemic-related consumer relief programs offered by Alliance Data in the second quarter of 2020.  EBT increased $334 million to $404 million compared to the second quarter of 2020, attributable to a lower provision for loan loss.  The net principal loss rate was 5.1% in the second quarter of 2021, an improvement of 250 basis points from the prior year period, while the delinquency rate of 3.3% improved 100 basis points from the prior year period.

Credit sales increased 54% to $7.4 billion compared to the second quarter of 2020, continuing to improve as consumer spending recovers.

LoyaltyOne: Segment revenue was nearly unchanged at $151 million compared to the second quarter of 2020.  BrandLoyalty revenue decreased 9%, or $7 million, due to a decline in retailer programs associated with the continuing impact of COVID-19.  AIR MILES revenue increased 11%, or $7 million, compared to the second quarter of 2020, due in part to higher redemptions, as well as the impact of favorable currency exchange rates.  EBT for the LoyaltyOne segment increased 2% to $24 million due to lower amortization expense.

Issuance of AIR MILES reward miles increased 8% compared to the second quarter of 2020, reflecting an increase in discretionary spending, including credit card spend. AIR MILES reward miles redeemed increased 32% compared to the second quarter of 2020, reflecting an improvement in travel-related categories and continued strength from merchandise redemptions.