The following discussion should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes thereto presented
in this quarterly report and the consolidated financial statements and related
notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2019, filed with the Securities and Exchange Commission, or SEC, on
February 28, 2020.
2020 Recent Developments
Effective February 3, 2020, our Board of Directors appointed Ralph Andretta as
? Alliance Data's President and Chief Executive Officer as well as a Director of
? For the nine months ended September 30, 2020, as compared to the nine months
ended September 30, 2019:
? Revenue decreased 17% to $3.4 billion.
? Net income increased 12% to $201.7 million.
? Adjusted EBITDA, net decreased 51% to $489.2 million.
Effective January 1, 2020, we adopted Accounting Standards Codification, or
ASC, 326, "Financial Instruments-Credit Losses," and applied a current expected
credit loss, or CECL, model to determine our allowance for loan loss. Estimates
of expected credit losses under the CECL model are based on relevant
information about past events, current conditions, and reasonable and
supportable forward-looking forecasts regarding the collectability of the loan
? portfolio. Our adoption of CECL on January 1, 2020 resulted in an increase in
our allowance for loan loss at adoption of $644.0 million, which was recorded
through a cumulative-effect adjustment to retained earnings, net of taxes. The
impact of CECL is significantly influenced by the composition, characteristics
and quality of our portfolio of credit card and loan receivables, as well as
the prevailing economic conditions and forecasts utilized and can lead to
volatility in our provision for loan loss.
In January 2020, we sold Precima, a provider of retail strategy and customer
data applications and analytics, for total consideration of approximately $43.8
? million. Included in total consideration is contingent consideration with an
estimated fair value of $1.5 million at September 30, 2020, upon the occurrence
of specified events and performance of the business. Precima was included in
our LoyaltyOne segment.
? We paid dividends and dividend equivalent rights of $50.5 million for the nine
months ended September 30, 2020.
? We sold one credit card portfolio for cash consideration of $289.5 million
during the nine months ended September 30, 2020.
We launched our direct-to-consumer Comenity-branded general purpose credit card
? which provides Alliance Data with an additional product to serve and retain our
In October 2020, we entered into an agreement to transition hosting of our
? credit card processing services to Fiserv, a leading global provider of
payments and financial services technology solutions.
In October 2020, we entered into a merger agreement with Lon Inc. ("Bread") to
? acquire Bread in its entirety. Bread provides technology solutions for
merchants to provide digital purchase financing options to customers in the
form of installment credit as well as credit and debit multi-pay solutions.
On March 11, 2020, the World Health Organization, or WHO, declared the current
coronavirus, or COVID-19, outbreak to be a global pandemic. Both prior to and in
response to this declaration and the rapid spread of COVID-19 around the world
and within the United States, international, federal, state and local
governments have imposed varying degrees of restrictions on social and
commercial activity in an effort to slow the spread of the illness. In response
to the COVID-19 pandemic, first and foremost, we have prioritized the health and
safety of our associates. Effective teleworking protocols are in place for more
than 95% of our associates.
COVID-19 restrictions have also adversely impacted and continue to adversely
impact our associates, our business partners, and our customers, which has
negatively impacted our financial performance. However, in the third quarter of
2020, we began to see sequential improvement in certain key metrics.
Specifically, our third quarter financial results demonstrated a recovery in
Card Services credit sales, which increased 28% sequentially over the second
quarter of 2020; further, credit metrics remained resilient, reflecting strong
payment trends across our cardholder base. Additionally, LoyaltyOne's revenue
improved from second quarter levels, reflecting better business conditions and
improved AIR MILES reward miles activity. On a sequential basis, AIR MILES
reward miles issued and redeemed improved 18% and 13%, respectively, over the
second quarter of 2020. We continue to drive company-wide expense reductions
from ongoing efficiency programs that have reduced our cost to serve and enabled
additional investment in areas of strategic priority.
We continue to monitor the evolving situation and guidance from international,
federal, state and local government and public health authorities. In addition,
surges in COVID-19 cases, such as those recently experienced in Europe and the
United States, may cause people to self-quarantine or governments to shut down
nonessential businesses again. Given the dynamic nature of this situation, we
cannot reasonably estimate the impacts of COVID-19 on our financial condition,
results of operations or cash flows at this time. We expect COVID-19 to have an
adverse impact on future revenue growth as well as overall profitability.
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