Dallas-based Alliance Data Systems (ADS) reported that private label credit card outstandings during the second quarter soared by 17.4% in the second quarter (Q2/14) to reach $8.17 billion. Delinquency declined to 4.0% and charge-offs decreased to 4.4% in the second quarter.
ADS says its private label’s Q2/14 growth was all organic, compared to 15% in Q1/14, which translated to proportionate revenue acceleration, up 16% in the second quarter compared to 13% in Q1/14. Adjusted EBITDA, net increased a solid 5% during the second quarter, despite both a build in the loan loss reserve and higher payroll expenses associated with personnel needed to on-board a record number of new clients in 2014. Adjusted EBITDA, net growth rates are expected to accelerate in the back half of 2014 as the newly on-boarded clients start generating revenue.
ADS also reports its Epsilon unit’s performance during Q2/14 demonstrated strong organic top line with revenue up 8% and improved bottom line with adjusted EBITDA, net up 6% compared to Q2/13. The rollout of the FordDirect program to 3,000 Ford and Lincoln dealers remains on track for completion by year end, providing a strong jump-off point entering 2015. ADS also noted that equally as important, its next generation digital messaging platform, Harmony, was successfully moved into full production during the second quarter. The product launched with the on-boarding of a new, large client with excellent results to date. ADS’ expectation for the year is to post high single-digit organic revenue growth and mid-single-digit adjusted EBITDA growth.
The ADS LoyaltyOne segment now consists of the AIR MILES Reward Program in Canada, the recently acquired BrandLoyalty, which operates primarily in Europe and Asia, and its 37% joint venture ownership stake in the Brazilian coalition program, dotz. Starting with AIR MILES, ADS saw a positive trend develop in its key metric, AIR MILES reward miles issued, which improved from being down 4% in the first quarter to flat in the second quarter of 2014. The financial results for AIR MILES followed a similar trend as, on a constant currency basis, revenue increased 6% and adjusted EBITDA was essentially flat with the second quarter compared to slightly negative growth in the first quarter of 2014. Shifting to BrandLoyalty, it continues to perform above expectations as both revenue and adjusted EBITDA increased over 20% – all organic – compared to Q2/13. Growth in core countries and markets, as well as significant inroads in new countries and markets, is driving these solid results. Lastly, dotz added another half-million collectors during the second quarter as it expanded in both existing and new markets.
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NOTES:
Charge-offs as a percentage of average receivables compares to 4.6% and 4.8% for the month and three months ended June 30, 2013, respectively, on a pro forma basis. Included in the pro forma net charge-off rate are those losses associated with the purchased credit card receivables of Bon Ton, Inc. and Talbots, which were acquired on July 24, 2012 and August 3, 2012, respectively. The Company believes that it is meaningful to investors to see the net charge-off rate that includes losses on these acquired credit card receivables as it is more indicative of a normalized loss rate
