Alliance Data Systems Corp. announced record results for its first quarter ended March 31, 2004 and increased guidance for 2004.
Total first quarter revenue increased 30 percent to $312.4 million compared to $240.2 million for the first quarter of 2003. Net income increased 163 percent to $32.3 million for the first quarter of 2004, or $0.39 per diluted share, compared to $12.3 million, or $0.16 per diluted share, for the first quarter of 2003.
EBITDA for the first quarter of 2004 increased 73 percent to $78.8 million compared to $45.6 million for the first quarter of 2003. Cash earnings increased 121 percent to $35.6 million compared to $16.1 million for the first quarter of 2003. Cash earnings per diluted share increased 105 percent to $0.43 per diluted share compared to $0.21 per diluted share for the first quarter of 2003. (See “Financial Measures” below for a discussion of EBITDA and cash earnings.)
The Company’s performance significantly exceeded expectations due to over- performances in all three growth engines totaling approximately $0.07 to $0.08 per share, as well as certain foreign exchange and timing benefits, also approximating $0.07 to $0.08 per share. Timing benefits included delayed expenses related to marketing efforts in Canada and new product expenditures. “We are very pleased with our record first quarter results, which significantly exceeded our expectations,” commented Mike Parks, chairman and chief executive officer. “All three of the Company’s growth engines again posted strong double-digit growth. Alliance Data continues to benefit from the significant client signings over the past two years as well as strong core growth across its business lines. This year is off to a strong start as evidenced by three significant contract renewals in our AIR MILES(R) Reward Miles program, including BMO Bank of Montreal, Shell Canada and Air Canada. In addition, the launch of the WestJet and BMO Bank of Montreal Tri-Branded Mastercard provides a new growth channel for Canada. We are also pleased with our new business pipeline. During the quarter we announced significant new private label customers, including Design Within Reach and Peebles. We are highly confident in the future and our continued ability to achieve our growth goals.”
Transaction Services revenue, our largest segment, increased 20 percent in the first quarter to $171.6 million compared to first quarter 2003. EBITDA increased 23 percent in the first quarter to $23.9 million compared to first quarter 2003. The vast majority of this segment consists of Alliance Data’s private label and utility services businesses, two of the Company’s main growth engines. Both of these engines are benefiting from core client growth plus new client signings that occurred during 2002 and 2003. These factors led to a more than 22 percent increase in the number of statements generated, while revenue per statement remained firm.
Credit Services revenue increased 30 percent in the first quarter to $142.2 million while EBITDA increased 123 percent to $40.0 million compared to first quarter 2003. All four of the segment’s key metrics were trending above expectations, which contributed to the segment’s over-performance. Specifically, both private label credit sales and portfolio growth grew at a rate in the mid to high teens as the significant number of signings in the last two years continued to ramp up. This ramp up, combined with a surprisingly strong consumer spending trend throughout the quarter, contributed to the Company’s better-than-expected results. The segment continued to benefit from operating expense improvements in both funding costs and credit losses.
Marketing Services revenue increased 35 percent in the first quarter to $80.4 million compared to first quarter 2003. EBITDA increased 82 percent in the first quarter to $14.9 million compared to first quarter 2003. The strong growth in revenue and EBITDA was driven by the segment’s two key business drivers: AIR MILES reward miles issued, which increased 9 percent, and AIR MILES reward miles redeemed, which increased 27 percent. Results also continued to benefit from the strong Canadian dollar and, as previously mentioned, the first quarter results reflected minimal marketing expenditures.
Based on Alliance’s strong performance this quarter, the Company expects to outperform the previously provided guidance for 2004. Specifically, the Company is increasing its 2004 cash earnings per share estimate to $1.30 – $1.33, representing 26 percent to 29 percent growth versus 2003. This revised guidance reflects some additional operating over-performance, partially offset by anticipated expenditures during the year designed to build for 2005 and 2006.
Regarding the second quarter, the Company expects cash earnings per share of $0.31 – $0.32, or approximately 30 percent to 33 percent growth over second quarter 2003. This reflects expectations of continued operating over- performance offset by the normal seasonal downturn in Credit Services and the elimination of the first quarter’s foreign exchange and timing benefits.
In addition to the results presented above in accordance with generally accepted accounting principles, or GAAP, the Company presents financial measures that are non-GAAP measures, such as EBITDA, Operating EBITDA and Cash Earnings. The Company believes that these non-GAAP measures, viewed in addition to and not in lieu of the Company’s reported GAAP results, provide useful information to investors regarding its performance and overall results of operations. The Company refers to EBITDA before stock compensation expense as EBITDA in this press release. 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 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 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.
About Alliance Data Systems
Based in Dallas, Alliance Data Systems (NYSE: ADS) is a leading provider of transaction services, credit services and marketing services. The Company assists retail, petroleum, utility and financial services clients in managing the critical interactions between them and their customers. Alliance Data manages approximately 95 million consumer relationships for some of North America’s most recognizable companies and operates and markets the largest coalition loyalty program in Canada. Alliance Data Systems employs approximately 7,500 associates at more than 20 locations in the United States and Canada.
For complete information on ADS’ first quarter performance visit CardData ([www.carddata.com]).