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

the Company.

? 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

cardholders.

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.

COVID-19 Update

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



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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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