Alliance Data Reports Full-Year 2016 Results

DALLAS, Jan. 26, 2017

SUMMARY	Quarter Ended December 31,				Year Ended December 31,
(in millions, except per share amounts) ARIVA.DE Börsen-Geflüster Kurse Bread Financial Inc 33,84 € +0,09%	2016	2015	% Change		2016	2015	% Change
Revenue	$1,828	$1,749	+4%		$7,138	$6,440	+11%
Net income	$     11	$   180	-94%		$   518	$   605	-15%
Net income attributable to Alliance Data   stockholders per diluted share ("EPS") (a)	$  0.18	$  2.35	-92%		$  7.34	$  8.85	-17%
Diluted shares outstanding	57.9	61.5	-6%		58.9	62.3	-5%
*******************************
Supplemental Non-GAAP Metrics (b):
Adjusted EBITDA	$   566	$   507	+12%		$2,096	$1,910	+10%
Adjusted EBITDA, net of funding costs and non-    controlling interest ("adjusted EBITDA, net") (a)	$  507	$   453	+12%		$1,880	$1,728	+9%
Core earnings attributable to Alliance Data    stockholders per diluted share ("core EPS") (a)	$ 4.67	$  4.13	+13%		$16.92	$15.05	+12%

Ed Heffernan, president and chief executive officer of Alliance Data, commented, "Excluding the one-time charge associated with a newly enacted provincial law in Canada, we posted a solid year with both revenue and core EPS increasing double-digits primarily driven by our BrandLoyalty and Card Services businesses. 

"We were surprised and disappointed with the enactment of new legislation in Ontario that now prohibits the time-based expiration of reward points associated with all loyalty programs. The cancellation of our 5-year expiration policy necessitated a change in our breakage estimate, creating a one-time charge recorded as a reduction of revenue in the fourth quarter of 2016. Going forward, we will need to rework the AIR MILES^® Reward Program to replace the lost economics while maintaining a viable value proposition for collectors engaged in the program.

"Epsilon^® fell short of revenue and EBITDA expectations for 2016 despite robust growth in the CRM and Auto product offerings. Our strategy for addressing the shortfall is two-fold. First, reduce Epsilon's cost structure - that is largely complete with our India operation up and operating at scale - and second, standardize our platform product offerings in order to reduce time to market.  

"Our biggest success in 2016 was the ability to grow core EPS double-digits despite a 12 point drag on growth from credit normalization. We remain on-track for solid growth again in 2017, and expect to complete the credit normalization process towards the end of the year."

Heffernan continued, "Consistent with our announcement in October 2016 of our intention to offer a balanced approach to return capital to shareholders through a combination of dividends and share repurchases, our board of directors today declared our second quarterly dividend of $0.52 with a record date of February 15."

FULL-YEAR CONSOLIDATED RESULTS

Revenue increased 11 percent to $7.14 billion and EPS decreased 17 percent to $7.34 for 2016. Excluding the $242 million charge from the breakage reset due to the elimination of time-based expiration of AIR MILES^® reward miles ("Expiry Reset") from the fourth quarter of 2016 and $0.65 in regulatory settlement charges from the third quarter of 2015, revenue increased 15 percent to $7.38 billion and EPS increased 10 percent to $10.47. Adjusted EBITDA, net increased 9 percent to $1.88 billion, while Core EPS increased 12 percent to $16.92 for 2016. Foreign exchange translation rates had less than a one percent negative impact on revenue and adjusted EBITDA for 2016.

FOURTH-QUARTER CONSOLIDATED RESULTS

Revenue increased 4 percent to $1.83 billion and EPS decreased 92 percent to $0.18 for 2016. Excluding the previously mentioned Expiry Reset, revenue increased 18 percent to $2.07 billion and EPS increased 41 percent to $3.31. Adjusted EBITDA, net increased 12 percent to $507 million, while core EPS increased 13 percent to $4.67 for the fourth quarter of 2016.

FOURTH-QUARTER SEGMENT REVIEW

LoyaltyOne^®: Revenue decreased 32 percent to $247 million for the fourth quarter of 2016. Excluding the Expiry Reset, revenue increased 34 percent to $489 million driven by strong redemption growth. Adjusted EBITDA decreased 14 percent to $74 million for the fourth quarter of 2016.

AIR MILES revenue prior to the Expiry Reset increased 65 percent to $283 million as collector redemption activity intensified ahead of the year-end expiration date. Redemptions for the fourth quarter of 2016 exceeded expectations, necessitating a reduction in the breakage rate estimate, or those AIR MILES reward miles not expected to be redeemed, from 26 percent to 24.5 percent. In addition, the five-year expiry policy implemented December 31, 2011 was cancelled December 1, 2016 as a result of the anticipated passage of Bill 47 by the Legislative Assembly of the Province of Ontario prohibiting the expiration of rewards points due to the passage of time alone. The elimination of time-based expiry further reduced the breakage rate estimate from 24.5 percent to 20 percent, prompting a one-time charge of $242 million.

BrandLoyalty revenue increased 9 percent on a constant currency basis. Its North American expansion efforts continue to progress. In Canada, revenue increased 60 percent to CAD $45 million for 2016. Additionally, the number of programs executed during 2016 increased to 7, including 5 in Canada and the initial 2 in the U.S.    

Epsilon: Revenue decreased 1 percent to $600 million, while adjusted EBITDA increased 3 percent to $162 million for the fourth quarter of 2016. Adjusted EBITDA for the fourth quarter of 2016 benefitted from a 5 percent reduction in human capital costs as duplicative payroll costs resulting from the ramp up of the new India office were eliminated.  

Core product offerings revenue (Auto, Technology, Data, Affiliate, CRM, Agency) increased 2 percent to $557 million. Strength in Auto and CRM were the primary contributors to the growth. Non-core offerings revenue (CNVR Agency) decreased 28 percent to 43 million - a 3 percent drag on growth for the fourth quarter of 2016.  

The strategy to drive revenue growth in 2017 is multifaceted. First, offer nextgen products including a cloud-based, quick-launch database platform for mid-market. Second, link the ad-tech platforms to CRM's digital data and unique media reach. Third, revitalize sales/client services to aggressively sell technology platforms. Last, leverage the advantage of a services-rich offering.  

Card Services: Revenue increased 26 percent to $988 million and adjusted EBITDA, net increased 21 percent to $299 million for the fourth quarter of 2015.

Gross yields were 25.1 percent for the fourth quarter of 2016, up approximately 10 basis points from the prior comparable period. Operating expenses increased 17 percent to $341 million, or 8.7 percent of average receivables, down 60 basis points compared to the fourth quarter of 2015. The loan loss provision increased 40 percent to $290 million for the fourth quarter of 2016, driven by strong growth in average card receivables and higher principal loss rates. Portfolio funding costs were $59 million for the fourth quarter of 2016, or 1.5 percent of average credit card receivables, up 15 basis points from the fourth quarter of 2015. 

Credit sales increased 16 percent to $9.0 billion for the fourth quarter of 2016, bolstered by a 110 basis point increase in tender share. Average credit card receivables, excluding amounts reclassified as assets held for sale, increased 22 percent to $15.3 billion compared to the fourth quarter of 2015, while net principal loss rates for the fourth quarter of 2016 were 5.5 percent, up 80 basis points from last year, primarily due to account seasoning. The delinquency rate was 4.8 percent at December 31, 2016, up 60 basis points from the same time last year.

2017 Guidance

Annual guidance is for revenue of $7.7 billion and core EPS of $18.50. 

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 and non-controlling interest, 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, amortization of debt issuance costs, mark-to-market gains or losses on interest rate derivatives, changes to the expiry policy and regulatory settlements. 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 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). 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, January 26, 2017 at 8:30 a.m. (Eastern Time) to discuss the Company's fourth-quarter and full year 2016 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.

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