Alliance Data Systems(BFH) - 2019 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for 2019 decreased by 2% to $5.6 billion, adjusted EBITDA net decreased by 21% to $1.3 billion, and core EPS decreased by 14% to $16.77, which is at the lower end of the 2019 guidance range [7] - The company sold $3.2 billion of non-core but income-producing receivables since 2017, impacting profitability in 2019 [7][9] - Parent-level debt was reduced by $2.9 billion, with extensions on debt maturities [9] Business Line Data and Key Metrics Changes - LoyaltyOne segment saw adjusted revenue increase by 5%, while adjusted EBITDA net was flat compared to 2018 [12] - AIR MILES adjusted revenue was flat, with a 1% decrease in AIR MILES redeemed [12] - BrandLoyalty's revenue increased by 8% on a constant currency basis, with adjusted EBITDA net increasing by 20% [13] - Card services reported credit sales up by 1%, with end-of-period receivables at approximately $19.5 billion, up 9% year-over-year [14] Market Data and Key Metrics Changes - The gross yield decreased by 50 basis points due to purchase accounting and decreases in the Fed fund rate [15] - Delinquency rates increased by 14 basis points, primarily due to portfolios acquired mid-2019 [16] Company Strategy and Development Direction - The company is focusing on transitioning card services towards more attractive clients and verticals, which has impacted profitability [7] - Cost structure has been streamlined, with a reduction of over $200 million in run rate expenses entering 2020 [9] - The company plans to invest in new product capabilities at Card Services while prioritizing debt retirement [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the LoyaltyOne segment for 2020, expecting low single-digit revenue and EBITDA growth [25] - The company anticipates a conservative outlook for 2020, with core EPS expected to increase by 22% due to cost containment measures [21] - Management acknowledged the need for improved onboarding processes and technology investments to remain competitive [42][43] Other Important Information - The company will implement CECL in 2020, anticipating an increase in the allowance for loan losses [23] - Corporate leverage ratio is approximately 2.4x, allowing room for capital returns [46] Q&A Session Summary Question: Key variables affecting card services and loyalty business outlook - Management highlighted the importance of new product introductions and maintaining relationships with clients as key variables for 2020 [27] Question: Confidence in guidance with new leadership - Management stated that the guidance is conservative and aligned with the new leader's vision [29] Question: Strategic vision for growing the portfolio - Management emphasized the need to re-energize core programs and onboard smaller clients for growth [32] Question: Delinquency trends and underlying performance - Management indicated that the overall delinquency rate remains stable, with pressures coming from acquired portfolios [65] Question: Changes in guidance for yields and loss rates - Management acknowledged a slight increase in loss rate expectations and adjustments in revenue impact due to the sale of Precima [81]