* Results exceed high-end of guidance * Raises 2008 Cash EPS guidance to $4.35
DALLAS, July 16 /PRNewswire-FirstCall/ -- Alliance Data Systems
Corporation (NYSE: ADS), a leading provider of loyalty and marketing solutions
derived from transaction-rich data, today announced results for the second
quarter ended June 30, 2008.
(Logo: http://www.newscom.com/cgi-bin/prnh/20051024/ADSLOGO )
Total second quarter revenue increased 5 percent to $507.2 million
compared to $481.8 million for the second quarter of 2007. Income from
continuing operations increased 20 percent to $61.9 million for the second
quarter of 2008, or $0.79 per diluted share.
Adjusted EBITDA for the second quarter of 2008 increased 7 percent to
$161.9 million compared to $150.9 million for the second quarter of 2007. Cash
earnings for the second quarter of 2008 increased 12 percent to $81.7 million
compared to $73.1 million for the second quarter of 2007. For the second
quarter of 2008, cash earnings per diluted share, the Company's preferred
metric for guidance, increased 14 percent to $1.04 compared to $0.91 for the
second quarter 2007. This also exceeded the Company's previously issued
guidance for second quarter cash earnings per diluted share of $1.00.
Operating EBITDA for the second quarter of 2008 decreased 3 percent to
$169.3 million compared to $174.4 million for the second quarter of 2007. See
"Financial Measures" below for a discussion of operating EBITDA, adjusted
EBITDA, cash earnings and cash earnings per diluted share. The segment
information, adjusted EBITDA, operating EBITDA, cash earnings and cash
earnings per diluted share exclude pre-tax merger and other non-routine costs
of $5.7 million for the three months ended June 30, 2008, including
$2.8 million of expenditures directly associated with the proposed but now
terminated merger of the Company with an affiliate of The Blackstone Group and
$2.9 million in compensation charges related to integration and cost savings
initiatives and other non-routine costs associated with the disposition of
non-core operations.
"We are pleased with our results for the second quarter as our organic
earnings growth returned to the double-digit level and our cash earnings per
share came in ahead of the high-end of our guidance," said Mike Parks,
Alliance Data chairman and chief executive officer. "Once again, our Canadian
AIR MILES(R) Reward Program continued to over-perform, recording the highest
revenue and adjusted EBITDA in its history. Additionally, we signed a
long-term nationwide renewal with RONA, a top-5 sponsor and the largest
Canadian distributor and retailer of hardware, home renovation and gardening
products. The second quarter was topped off by the contract renewal and
expansion of the Company's largest client, the Bank of Montreal. The expanded
relationship now offers us an additional avenue to add value to our client as
well as grow our earnings stream."
Mr. Parks added, "Epsilon Marketing Services continued double-digit growth
in adjusted EBITDA and solid renewals from key clients such as Nestle Purina
PetCare Company and National Geographic. New wins from our pipeline continue
to move forward at a strong pace. Finally, while Private Label Services and
Private Label Credit results continue to be affected by the loss of the Lane
Bryant portfolio, we are beginning to see traction from the ramp-up of clients
signed over the last three years as well as a very robust pipeline of
potential new clients. This quarter we announced multi-year renewals with
Crate & Barrel and Dress Barn, Inc., a top-10 Alliance Data client. In
addition, during the quarter we signed a new client, PeachDirect, which is a
fast growing web and catalog retailer of luxury merchandise.
"With regard to our previously announced disposition plan, we closed the
sale of our merchant services business, a non-core operation, bringing in
approximately $77 million in cash and have entered into a definitive agreement
to sell most of our non-core utility business, for approximately $50 million
in cash. In addition, while the challenging macro-economic environment has
weighed down the overall stock market, it offered a tremendous opportunity for
us to repurchase shares under our previously authorized $500 million program."
SEGMENT REVIEW
Loyalty Services. Loyalty Services achieved the strongest quarter in its
history, delivering $53.5 million in adjusted EBITDA, an increase of 66
percent from the prior year period, which drove adjusted EBITDA margins up 500
basis points versus the second quarter of 2007. Driving this historic
performance was a 31 percent increase in revenue to $200.0 million in the
second quarter due to strong double-digit growth in both AIR MILES reward
miles issued and AIR MILES reward miles redeemed.
Additionally, the AIR MILES Reward Program continues to benefit from
stable pricing, the ramp-up of new sponsors, expanded commitments from
existing sponsors, the continued benefit of coalition loyalty as households
frequent an increasing number of sponsors and a moderate pick-up from the
stronger Canadian dollar versus last year. Finally, a lower cost structure
achieved through operating leverage continued to drive margin expansion.
As a result of the factors noted above, Loyalty Services is currently
running well above its long-term target rates for both revenue and adjusted
EBITDA. As such, it is expected that the segment's performance for the
full-year 2008 will remain well ahead of initial expectations. Additionally,
the renewal of RONA, the expanded relationship with Bank of Montreal and the
pipeline consisting of both larger commitments from existing sponsors and new
sponsor signings all provide solid comfort that 2009 will be another strong
year for Loyalty Services.
Epsilon Marketing Services. For the second quarter of 2008, Epsilon
Marketing Services posted solid year-over-year adjusted EBITDA growth to
$26.4 million, highlighted by a continued double-digit organic growth rate.
While revenue grew by just over 5 percent for the second quarter to
$115.4 million, it should be noted that year-to-date revenue growth remains at
a double-digit pace. Epsilon Marketing Services continues to have the most
robust pipeline in the Company and signings this year have thus far covered a
variety of industries including insurance, healthcare, financial services,
computer services, retail and leisure. The segment's performance was driven by
significant renewals (Nestle Purina & National Geographic), larger commitments
from existing clients, stable pricing and new client ramp-ups.
Epsilon Marketing Services continues to benefit from the increasing shift
of Fortune 1000 companies' marketing spend away from traditional channels and
toward transaction-based loyalty and marketing programs that offer greater
ROI. For 2008, guidance for Epsilon Marketing Services remains in-line with
previous expectations of double-digit revenue growth and mid-teens adjusted
EBITDA growth, which, in turn, will drive margin expansion.
Private Label Services. Private Label Services provides processing,
high-end customer care and marketing programs associated with the Company's
approximately 90 card-based programs. For the second quarter, Private Label
Services revenue increased year-over-year approximately 5 percent to
$95.8 million, while adjusted EBITDA increased 22 percent to $29.9 million.
The key segment driver -- private label statements generated -- declined
9 percent during the second quarter as compared to the prior year period.
Excluding the loss of the Lane Bryant portfolio, statements generated remained
relatively flat as compared to the prior year period.
During the second quarter of 2008, the segment benefited from fees earned
based upon incremental costs of expanding both its collections and customer
care staff. These costs originated in Private Label Services, but ultimately
will also provide an economic benefit to Private Label Credit. Private Label
Services has increased its charges to Private Label Credit in 2008 due to the
increased costs incurred by Private Label Services related to the ramp-up of
the Company's collections and client services teams in 2007. Additionally,
Private Label Services is expected to generate growth as the Lane Bryant
grow-over eases and overall volumes begin to increase due to the continued
ramp-ups of new clients signed in 2005, 2006 and 2007. For the full-year
2008, the Company expects Private Label Services to realize mid-to-high single
digit growth in adjusted EBITDA.
Private Label Credit. For the second quarter, Private Label Credit
revenue declined year-over-year 9 percent to $187.6 million due exclusively to
the loss of Lane Bryant. For the second quarter, Private Label Credit
adjusted EBITDA declined 29 percent to $63.6 million of which over half of the
decline was due to the loss of Lane Bryant and transfer pricing.
Overall, the trends in the Company's operating metrics are favorable. For
the second quarter, credit losses, while still above 2007 levels, improved
over 20 basis points versus the first quarter of 2008 and remain comfortably
on track to achieve the Company's mid-6 percent target for the full-year 2008.
Furthermore, credit loss grow-over versus 2007 will anniversary in the fourth
quarter along with Lane Bryant.
Delinquency rates, which historically have been a key predictor of future
loss rates, also showed improvement and remain comfortably on track with the
Company's mid-5 percent full-year 2008 goal. The delinquency grow over versus
2007 will anniversary in the third quarter, one quarter ahead of credit
losses. Finally, it should be noted that delinquencies have remained at or
below the mid-5 percent range for 11 straight months, suggesting stable credit
loss rates for the back half of 2008 and into 2009. Other metrics also
suggest modest growth as portfolio growth and credit sales grew 6 percent and
2 percent, respectively, when excluding the loss of the Lane Bryant portfolio.
Lastly, funding costs remained favorable in the second quarter.
Private Label Credit will anniversary its higher delinquencies in the
third quarter of 2008 and the segment's higher losses and the loss of the Lane
Bryant portfolio in the fourth quarter of 2008. Given the stability shown for
11 months in delinquencies, the continued ramp-up of clients signed and 2005,
2006 and 2007 and the expected signings of six to seven new clients this year,
the segment is expected to show positive growth in the fourth quarter and be
poised for a strong start for 2009.
OUTLOOK FOR 2008
For 2008, the Company expects to continue to deliver on its three
long-term objectives -- double-digit organic growth in adjusted EBITDA and
cash earnings, solid free cash flow generation and earnings visibility.
Loyalty Services is expected to demonstrate over-performance throughout
the year, while Epsilon Marketing Services remains comfortably on track to
meet its plan. Within Private Label, higher credit loss rates have been
mitigated by lower funding costs. Based on stable delinquency flows over the
past 11 months, the ramp-up of new clients and the upcoming anniversary of the
loss of the Lane Bryant portfolio, the Company expects Private Label to
contribute positively to growth in the fourth quarter and be a solid
contributor in 2009. Solid performance by Epsilon Marketing Services combined
with over-performance in Loyalty Services are expected to drive the Company's
accelerated earnings guidance throughout the remainder of the year.
Given the over-performance in the first half of 2008, the benefits of
lower capital expenditures and interest expense and the impact of the
previously announced stock repurchase program, the Company is comfortable
raising its 2008 cash earnings per share guidance to $4.35 from our original
guidance of $4.30. Revenue and adjusted EBITDA guidance remain consistent
with previous guidance. For the third quarter of 2008, the Company is
expecting to deliver cash earnings per share of $1.15 as originally indicated.
Additionally, the Company may trade off some potential upside to enhance
future visibility by locking in more expensive long-term fixed rate funding
for Private Label Credit. For the fourth quarter of 2008, the Company is
expecting cash earnings per share ahead of the third quarter.
Finally, regarding capital structure, in 2008, the Company has repurchased
approximately $450 million of its outstanding shares at an average price of
$58.37 per share. Due to the timing of the repurchases, they did not have a
meaningful accretive impact to second-quarter results.
Financial Measures
In addition to the results presented in accordance with generally accepted
accounting principles, or GAAP, the Company presents financial measures that
are non-GAAP measures, such as adjusted EBITDA, operating EBITDA, cash
earnings and cash earnings per diluted share. These non-GAAP financial
measures exclude the loss associated with the sale of the Mail Services
business unit, costs associated with the proposed merger and other 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. These metrics are an integral part of the Company's
internal reporting to measure the performance of reportable segments and the
overall effectiveness of senior management. Reconciliations to comparable GAAP
financial measures are available in the accompanying schedules and on the
Company's website. The financial measures presented are consistent with the
Company's historical financial reporting practices. 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 our various agreements or public filings.
Conference Call
Alliance Data will host a conference call on July 16, 2008 at 5:00 p.m.
(Eastern) to discuss the Company's second quarter results. The conference call
will be available via the Internet at http://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 706-645-9291 and enter
"54503053". The replay will be available from two hours after the end of the
call until 11:59 P.M. (Eastern Time) on July 23, 2008.
About Alliance Data
Alliance Data (NYSE: ADS) is a leading provider of marketing, loyalty and
transaction services, managing over 120 million consumer relationships for
some of North America's most recognizable companies. Using transaction-rich
data, Alliance Data creates and manages customized solutions that change
consumer behavior and that enable its clients to create and enhance customer
loyalty to build stronger, mutually beneficial relationships with their
customers. Headquartered in Dallas, Alliance Data employs over 9,000
associates at more than 60 locations worldwide. Alliance Data's brands include
AIR MILES(R), North America's premier coalition loyalty program, and
Epsilon(R), a leading provider of multi-channel, data-driven technologies and
marketing services. For more information about the Company, visit its website,
http://www.AllianceData.com.
Alliance Data's Safe Harbor Statement/Forward Looking Statements
This release may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements may use words
such as "anticipate," "believe," "estimate," "expect," "intend," "predict,"
"project" and similar expressions as they relate to us or our management. When
we make forward-looking statements, we are basing them on our management's
beliefs and assumptions, using information currently available to us. Although
we believe that the expectations reflected in the forward-looking statements
are reasonable, these forward-looking statements are subject to risks,
uncertainties and assumptions, including those discussed in our filings with
the Securities and Exchange Commission.
If one or more of these or other risks or uncertainties materialize, or if
our underlying assumptions prove to be incorrect, actual results may vary
materially from what we projected. Any forward-looking statements contained in
this presentation reflect our current views with respect to future events and
are subject to these and other risks, uncertainties and assumptions relating
to our operations, results of operations, growth strategy and liquidity. These
risks, uncertainties and assumptions include those made with respect to and
any developments related to the termination of the proposed merger with an
affiliate of The Blackstone Group, including risks and uncertainties arising
from actions that the parties to the merger agreement or third parties may
take in connection therewith. We have no intention, and disclaim any
obligation, to update or revise any forward-looking statements, whether as a
result of new information, future results or otherwise.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: Statements in this presentation regarding Alliance Data Systems
Corporation's business which are not historical facts are "forward-looking
statements" that involve risks and uncertainties. For a discussion of such
risks and uncertainties, which could cause actual results to differ from those
contained in the forward-looking statements, see "Risk Factors" in the
Company's Annual Report on Form 10-K for the most recently ended fiscal year.
Risk factors may be updated in Item 1A in each of the Company's Quarterly
Reports on Form 10-Q for each quarterly period subsequent to the Company's
most recent Form 10-K.
ALLIANCE DATA SYSTEMS CORPORATION
SUMMARY FINANCIAL HIGHLIGHTS
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007 Change 2008 2007 Change
Revenue $507.2 $481.85%$1,006.5 $948.26%
Income from
continuing operations $61.9$51.5 20% $124.7 $116.37%
Income from continuing
operations per share
-- diluted $0.79$0.64 23% $1.57$1.449%
Adjusted EBITDA $161.9 $150.97% $326.4 $310.95%
Operating EBITDA$169.3 $174.4 (3)% $344.5 $326.06%
Cash Earnings$81.7$73.1 12% $162.5 $154.45%
Cash Earnings per
share -- diluted$1.04$0.91 14% $2.04$1.917%
As of As of
June 30, December 31,
2008 2007
Cash and cash equivalents $208.2 $219.2
Seller's interest and credit card receivables 454.0 652.4
Redemption settlement assets 673.1 317.1
Intangible assets, net 314.0 343.4
Goodwill 1,176.61,185.8
Total assets 4,128.84,103.6
Deferred revenue 1,179.3 828.3
Certificates of deposit264.8 370.4
Core debt(1) 1,130.0 921.0
Total liabilities 3,249.22,906.6
Stockholders' equity879.61,197.0
(1) Core debt excludes certificates of deposit and capital leases and
other debt.
ALLIANCE DATA SYSTEMS CORPORATION
SUMMARY FINANCIAL HIGHLIGHTS
(In millions)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2008 2007Change 2008 2007 Change
Segment Revenue:
Loyalty
Services$200.0 $153.2 31% $371.8 $285.030%
Epsilon Marketing
Services 115.4 109.4 5230.8 208.011
Private Label
Services 95.8 91.5 5190.4 189.4 1
Private Label
Credit 187.6 206.3 (9) 396.7 426.1(7)
Corporate/Other 1.6 10.2(84) 2.1 21.4 (90)
Intersegment (93.2) (88.8) 5 (185.3)(181.7)2
$507.2 $481.8 5%$1,006.5 $948.2 6%
Segment Adjusted
EBITDA:
Loyalty Services $53.5 $32.3 66% $94.2 $58.062%
Epsilon Marketing
Services 26.4 23.6 12 50.0 44.512
Private Label
Services 29.9 24.6 22 56.9 57.1 -
Private Label
Credit63.6 89.4(29) 150.7 189.3 (20)
Corporate/Other (11.5) (19.0) (39) (25.4) (38.0) (33)
$161.9 $150.9 7% $326.4 $310.9 5%
Key Performance
Indicators:
Private label
statements
generated 30.8 33.7(9)%62.6 68.2 (8)%
Average managed
receivables $3,831.4 $3,853.3(1)%$3,869.1 $3,884.8-
Private label
credit sales $1,863.8 $1,917.2(3)%$3,401.9 $3,503.6 (3)%
AIR MILES
Reward Miles
issued 1,139.91,036.1 10% 2,162.91,978.2 9%
AIR MILES
Reward Miles
redeemed 786.3 673.9 17% 1,487.91,318.313%
As Adjusted Key
Performance
Indicators(1)
Private label
statements
generated 30.8 31.4(2)%62.6 63.6 (2)%
Average managed
receivables $3,831.4 $3,615.4 6%$3,869.1 $3,647.4 6%
Private label
credit sales $1,863.8 $1,819.3 2%$3,401.9 $3,332.5 2%
(1) Excludes the impact of the loss of the Lane Bryant portfolio.
ALLIANCE DATA SYSTEMS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In millions, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30,June 30,
2008 2007 20082007
Total revenue $507.2 $481.8 $1,006.5 $948.2
Total operating expenses 393.1 379.6773.8 725.4
Operating income 114.1 102.2232.7 222.8
Interest expense, net 13.9 18.9 31.034.7
Income from continuing
operations before
income taxes100.2 83.3201.7 188.1
Income tax expense38.3 31.8 77.071.8
Income from continuing
operations 61.9 51.5124.7 116.3
Loss from discontinued
operations, net of taxes(15.0) (7.4) (28.4) (15.3)
Net income $46.9 $44.1$96.3 $101.0
Per share data:
Basic - Income from
continuing operations $0.81 $0.66$1.61 $1.48
Basic - Loss from
discontinued operations (0.20) (0.10) (0.37) (0.19)
Basic - Net income $0.61 $0.56$1.24 $1.28
Diluted - Income from
continuing operations $0.79 $0.64$1.57 $1.44
Diluted - Loss from
discontinued operations (0.19) (0.09) (0.36) (0.19)
Diluted - Net income $0.60 $0.55$1.21 $1.25
Weighted average shares
outstanding - basic 76.6 78.2 77.578.6
Weighted average shares
outstanding - diluted78.6 80.5 79.580.8
ALLIANCE DATA SYSTEMS CORPORATION
RECONCILIATION OF NON-GAAP INFORMATION
(In millions, except per share amounts)
(Unaudited)
Three Months EndedSix Months Ended
June 30, June 30,
20082007 20082007
Adjusted EBITDA and
Operating EBITDA:
Income from continuing
operations (GAAP measure) $61.9 $51.5$124.7 $116.3
Stock compensation expense7.710.2 14.020.6
Income tax expense 38.331.8 77.071.8
Interest expense, net13.918.9 31.034.7
Depreciation and other
amortization17.614.9 35.328.7
Amortization of purchased
intangibles 16.817.4 34.032.6
Loss on sale of assets - - 1.0 -
Merger and other costs5.7 6.2 9.4 6.2
Adjusted EBITDA 161.9 150.9 326.4 310.9
Change in deferred
revenue(1) 373.273.6 351.086.7
Change in redemption
settlement assets(1) (365.6) (11.4) (356.0) (28.0)
Foreign currency impact (0.2) (38.7) 23.1 (43.6)
Operating EBITDA$169.3 $174.4$344.5 $326.0
Cash Earnings:
Income from continuing
operations (GAAP measure)$61.9 $51.5$124.7 $116.3
Add back non-cash
non-operating items and
merger and other costs:
Stock compensation
expense 7.710.2 14.020.6
Amortization of
purchased intangibles 16.817.4 34.032.6
Loss on the sale
of assets - - 1.0 -
Merger and other costs5.7 6.2 9.4 6.2
Income tax effect(2) (10.4) (12.2)(20.6) (21.3)
Cash earnings $81.7 $73.1$162.5 $154.4
Weighted average shares
outstanding - diluted 78.680.5 79.580.8
Cash earnings per
share - diluted $1.04 $0.91 $2.04 $1.91
(1) Increases to deferred revenue and redemption settlement assets in
2008 were impacted by the transaction completed with the Bank of
Montreal in the second quarter of 2008.
(2) Represents income taxes adjusted for the related tax benefit or
expense for the non-GAAP measure adjustments.
ALLIANCE DATA SYSTEMS CORPORATION
RECONCILIATION OF SEGMENT ADJUSTED EBITDA
(In millions)
(Unaudited)
Three months ended June 30, 2008
Stock
compen-Merger &
Operating Depreciation & sationother non-Adjusted
income amortization expense routine costs EBITDA(1)
Loyalty Services $42.3 $8.2$3.0 $- $53.5
Epsilon Marketing
Services 4.2 18.9 0.72.6 26.4
Private Label
Services 25.92.2 1.20.6 29.9
Private Label
Credit60.42.8 0.4 - 63.6
Corporate/Other (18.7) 2.3 2.42.5 (11.5)
$114.1 $34.4$7.7 $5.7$161.9
Three months ended June 30, 2007
Stock
compen-Merger &
Operating Depreciation & sationother non-Adjusted
income amortization expense routine costs EBITDA(1)
Loyalty Services $24.5 $6.0$1.8 $- $32.3
Epsilon Marketing
Services 2.7 18.4 2.5 - 23.6
Private Label
Services 21.12.2 1.3 - 24.6
Private Label
Credit86.42.8 0.2 - 89.4
Corporate/Other (32.5) 2.9 4.46.2 (19.0)
$102.2 $32.3 $10.2 $6.2$150.9
Six Months ended June 30, 2008
Stock
compen-Merger &
Operating Depreciation & sationother non-Adjusted
income amortization expense routine costs EBITDA(1)
Loyalty Services $73.2 $16.6$4.4 $- $94.2
Epsilon Marketing
Services 7.8 38.1 1.52.6 50.0
Private Label
Services 48.94.5 2.01.5 56.9
Private Label
Credit 144.35.6 0.8 - 150.7
Corporate/Other (41.5) 4.5 5.36.3 (25.4)
$232.7 $69.3 $14.0 $10.4$326.4
Six Months ended June 30, 2007
Stock
compen-Merger &
Operating Depreciation & sationother non-Adjusted
income amortization expense routine costs EBITDA(1)
Loyalty Services $42.7 $11.6$3.7 $- $58.0
Epsilon Marketing
Services 6.2 33.8 4.5 - 44.5
Private Label
Services 49.94.5 2.7 - 57.1
Private Label
Credit 183.35.6 0.4 - 189.3
Corporate/Other (59.3) 5.8 9.36.2 (38.0)
$222.8 $61.3 $20.6 $6.2$310.9
(1) Represents segment Adjusted EBITDA and is equal to operating income
plus depreciation, amortization, stock compensation expense and
merger and other costs.
SOURCE Alliance Data Systems Corporation
