Alliance Data : Q4 2020 Slide Presentation

Alliance Data

Full Year & Fourth Quarter 2020 Results January 28, 2021

Ralph Andretta - President & CEO Tim King - EVP & CFO

©2021 ADS Alliance Data Systems, Inc.

Forward-Looking Statements

This presentation contains forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward‐looking statements give our expectations or forecasts of future events and can generally be identified by the use of words such as "believe," "expect," "anticipate," "estimate," "intend," "project," "plan," "likely," "may," "should" or other words or phrases of similar import. Similarly, statements that describe our business strategy, outlook, objectives, plans, intentions or goals also are forward‐looking statements. Examples of forward‐looking statements include, but are not limited to, statements we make regarding, and the guidance we give with respect to, our anticipated operating or financial results, initiation or completion of strategic initiatives, future dividend declarations, and future economic conditions, including, but not limited to, fluctuation in currency exchange rates, market conditions and COVID‐19 impacts related to relief measures for impacted borrowers and depositors, labor shortages due to quarantine, reduction in demand from clients, supply chain disruption for our reward suppliers and disruptions in the airline or travel industries.

We believe that our expectations are based on reasonable assumptions. Forward‐looking statements, however, are subject to a number of risks and uncertainties that could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this presentation, and no assurances can be given that our expectations will prove to have been correct. These risks and uncertainties include, but are not limited to, factors set forth in the Risk Factors section in our Annual Report on Form 10‐K for the most recently ended fiscal year, which may be updated in Item 1A of, or elsewhere in, our Quarterly Reports on Form 10‐Q filed for periods subsequent to such Form 10‐K. Our forward‐looking statements speak only as of the date made, and we undertake no obligation, other than as required by applicable law, to update or revise any forward‐looking statements, whether as a result of new information, subsequent events, anticipated or unanticipated circumstances or otherwise.

©2021 ADS Alliance Data Systems, Inc.

2020 Key Takeaways

• Resilient performance in a challenging operating environment
• Reduced our fixed cost base and de‐risked our balance sheet
• Optimized our physical real estate footprint
• Invested in key talent and expanded our products and capabilities

©2021 ADS Alliance Data Systems, Inc.

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Business Investment Highlights

Product and technology enhancements to support growth and digital acceleration

Fintech acquisition adds a new white‐label	Selected Fiserv's flexible processing platform to gain
point‐of‐sale technology platform and products	new capabilities and operational efficiencies

Launched scalable, full digital	New proprietary credit card,
payments solution	Comenity CardSM

Product Expansion	Technology Advancement	Digital Journeys

©2021 ADS Alliance Data Systems, Inc.

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2020 Fourth Quarter Financial Highlights

Continued progress in core underlying performance

B	Revenue	$1.93	Diluted EPS from
$1.1			Continuing Ops.
$93MM	Net Income from	$0.25	Diluted EPS
Continuing Ops.

• Net income of $12 million impacted by a loss from discontinued operations of $81 million after tax
• Credit sales of $7.7 billion in 4Q20 represented a 24% increase versus 3Q20
• Normalized average receivables* increased 3% versus 3Q20
• Credit metrics remained in line with historic levels with a net loss rate of 6.0% for the quarter**
• AIR MILES® reward miles issued and redeemed improved 9% and 22% respectively versus 3Q20
• • Normalized receivables includes held‐for‐sale receivables
  • Net loss rate impacted by pandemic‐related consumer relief program. See slide 26 in the appendix for more information

©2021 ADS Alliance Data Systems, Inc.

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Card Services Performance Highlights

Gradual recovery in credit sales continues from pandemic lows

• Credit sales declined 18% year‐over‐year in 4Q20 with active* program sales down 7%
• Credit sales improved 24% sequentially from 3Q20 (vs. 19% in the same period last year)
• Online sales remained over 40% of total in 4Q20

Year‐over‐year credit sales improving at a modest pace for total & active program sales

‐3%	Active program sales	‐7%
‐14%
‐21%	Total sales	‐18%
‐34%

‐36%

1Q20

2Q20

3Q20

4Q20

* Includes programs with active contracts as of December 31, 2020 and Comenity card balances

©2021 ADS Alliance Data Systems, Inc.

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Partnership Highlights

Added 60+ online merchants in the fourth quarter, bringing our total to over 500

New Partnerships		Technology Partnership

Exclusive online technology platform

provider of digital payment products for RBC

Partner Renewal

Furniture & Home Décor

Partner since 2002

Enhanced omni‐channel

customer experience

©2021 ADS Alliance Data Systems, Inc.

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LoyaltyOne® Performance Highlights

Sequential 25% revenue improvement over third quarter 2020

• Reward miles issued and redeemed improved vs 3Q20; however, the year‐ over‐year impact of lower discretionary spend continues
• AIR MILES continues to pivot the rewards portfolio to emphasize more non‐travel options, driving higher merchandise redemptions in 4Q20

• With the potential return of COVID‐ 19‐related lockdowns in Europe, many retailers continue to push promotional programs into 2021
• Revenue improved 36% vs 3Q20 in part due to seasonality

AIR MILES program performance

1,486

			1,316			1,355
				1,240
81%			1,053
	76%
				58%	55%	62%
4Q19	1Q20	2Q20	3Q20	4Q20
			Miles issued (in millions)	Miles redeemed / issued ("burn rate")

©2021 ADS Alliance Data Systems, Inc.

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Areas of Focus

Deliberate and thoughtful progress balancing the pandemic and future growth

Recover

RebuildRegrow

• Associate safety & health
• Recession readiness plan
• Right‐size expense base
• Disciplined risk management
• Review partner economics

• Expand digital offerings
• • Enhanced Digital Suite
  • POS payment solutions
• Technology flexibility & upgrades
• • Core processing platform
• Enhance data & analytics
• Prudent balance sheet management

• Focused investment
• • Align with recovery trend
• Further digital enhancements
• Sustained, profitable growth
• Expense flexibility and discipline
• Drive shareholder value

These action items aim to restore profitable growth & drive enhanced long‐term shareholder value

©2021 ADS Alliance Data Systems, Inc.

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Financial Results - Consolidated

($ in millions, except per share)

Total revenue

Total operating expenses, excl. provision for loan loss Provision for loan loss

Interest expense

Total earnings before tax (EBT)

Income tax

Income from continuing operations

Income from continuing operations per diluted share

Diluted shares outstanding

4Q20	4Q19		4Q %		FY20	FY19
	Change
$1,110	$1,461	(24)%	$4,521	$5,581
699	771	(9)	2,367	3,086
152	381	(60)	1,266	1,188
113	142		(20)		494	569
$146	$167	(13)%	$394	$738
53	37		43		99	166
$93	$130		(28)%		$295	$573
$1.93	$2.74	(30)%	$6.16	$11.24
48.4	47.6			47.9	50.9

FY % Change

(19)%

(23)

7

(13)

(47)%

(40)

(48)%

(45)%

Pre‐provision, pre‐tax	$299	$548	(46)%	$1,661	$1,926
Core EPS - diluted	$3.31	$4.12	(20)%	$9.39	$16.77

(14)%

(44)%

********************************************************************************************

(Including discontinued operations)
Net income	$12	$98	(88)%	$214	$278	(23)%
Net income per diluted share	$0.25	$2.05	(88)%	$4.46	$5.46	(18)%

Totals may not sum due to rounding

©2021 ADS Alliance Data Systems, Inc.

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Financial Results ‐ Segments

($ in millions)	4Q20	4Q19		4Q %		FY20	FY19		FY %
		Change			Change
LoyaltyOne	$231	$332	(31)%	$765	$1,033	(26)%
Card Services	879	1,128	(22)	3,757	4,548	(17)
Corporate/Other	‐	‐		nm		‐	‐		nm
Total revenue	$1,110	$1,461	(24)%	$4,521	$5,581	(19)%
LoyaltyOne	$22	$58	(62)%	$111	$103	8%
Card Services	187	162	15	501	992	(49)
Corporate/Other	(63)	(52)		20		(218)	(356)		(39)
Total earnings before tax (EBT)	$146	$167	(13)%	$394	$738	(47)%

	17%	18%	FY20 total
FY20 total
		earnings
revenue*	83%	82%
before tax*

• Percentages based on Card Services and LoyaltyOne segments combined as reported excluding Corporate/Other and intersegment eliminations Totals may not sum due to rounding; nm = not meaningful

©2021 ADS Alliance Data Systems, Inc.

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Key Business Metrics

Improving sales and stable yield drove sequential revenue improvement

• Revenue growth of 6% on a sequential basis was aided by the seasonal increase in receivables and a relatively stable gross yield
• Total operating expenses excluding provision for loan loss increased sequentially as a result of the previously announced nearly $50 million of real estate optimization costs, an approximately $40 million increase in marketing, and an approximately $30 million increase in cost of redemptions in our LoyaltyOne business

	Credit sales improved sequentially		Card Services yield remained stable in 4Q20
	($ in billions)
$19.4	$18.6				25.5%
	$16.2	$15.4	$15.8	23.3%			22.5%
						22.3%
	$9.3		$7.7			20.4%
	$6.1	$6.2
	$4.8		24%	2.4%	2.4%	2.5%	2.4%	2.1%

4Q19	1Q20	2Q20	3Q20	4Q20	4Q19	1Q20	2Q20	3Q20	4Q20
		Normalized average receivables*			Credit sales	Card Services gross yield		Card Services cost of funds

* Normalized receivables includes held‐for‐sale receivables

©2021 ADS Alliance Data Systems, Inc.

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Credit Quality and Allowance

Continued decline in delinquency rate a positive indicator for 2021 performance

Net loss rate

Max net loss rate since 2005: 10.0%

6.3%

7.0%

7.6%

5.8%

Avg net loss rate since 2005: ~6.0%

6.0%

Min net loss rate since 2005: 3.8%

4Q19

1Q20

2Q20

3Q20*

4Q20*

• ‐ ‐ includes historic quarterly range from 2005‐4Q20

Delinquency rate

5.8% 6.0%

4.3% 4.7% 4.4%

Reserve rate

		CECL	($ in millions)
			$2,151	$2,096			$2,081	$2,008
$1,171
				13.3%			13.3%
12.1%			12.0%
6.0%
4Q19	1Q20	2Q20	3Q20	4Q20
				ALLL balance			Reserve rate **

• CECL adoption impact of $644 million on 1/1/20
• Allowance of $2.0 billion is down slightly from 3Q20 and nearly double 4Q19

4Q19	1Q20	2Q20	3Q20	4Q20

• Net loss rate impacted by pandemic‐related consumer relief program. See slide 26 in the appendix for more information
• Calculated as a percentage of allowance for loan loss to end of period credit card and loan receivables

©2021 ADS Alliance Data Systems, Inc.

13

Capital and Liquidity Update

Sufficient corporate liquidity; Banks remain well‐capitalized

Parent Level

• Liquidity at 12/31 of $1.1 billion, consisting of cash on hand plus revolver capacity
• Approximately $343 million in cash and cash equivalents, $750 million in unused revolver

Bank Level

• Banks finished the quarter with $2.7 billion in cash and $2.6 billion in equity
• Total risk based capital ratio at 19.7% ‐ approximately double the 10% threshold to be considered well‐ capitalized; CET1 at 18.4%
• Funding readily available with heavy demand for FDIC‐insured deposit products - both direct‐to‐ consumer and brokered

©2021 ADS Alliance Data Systems, Inc.

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2021 Financial Outlook

			Full Year 2021	Commentary
Normalized average		• Sequential decline in 1Q21 & 2Q21
Down mid‐ to	• Flat year‐over‐year in 2H21
receivables
(Receivables plus held‐for‐sale)	high‐single digits	• Expect year‐end receivables to be in line with year‐end 2020
2020 = $16,468 million		• Credit sales up high‐single digits in 2021
				• LoyaltyOne full year revenue growth in 2021
Total revenue	Down low‐single	• Revenue pressure for Card Services as balances rebuild from
2020 = $4,521 million	digits	pandemic‐related reductions
				• Gross card yields remain steady
Total expenses*	Flat	• Includes increased digital investment and a ramp up in
(Excludes provision for loan loss)	marketing spend from depressed levels in 2020
2020 = $2,861 million		• Impacted by Bread® & Fiserv related transition expenses
Net loss rate	Expect net loss rate to remain near the historic average of 6% in the first quarter of 2021
2020 = 6.6%
* Total expenses represent total operating expenses less provision for loan loss plus total interest expense, net
				©2021 ADS Alliance Data Systems, Inc.

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Strategic Initiatives

Focused investment to drive sustainable long‐term shareholder value

Technology	Product	Digital	Data Science and
Diversification and
Innovation	Advancement	Analytics
Development

Leverage technology	Expand our product		Evolution in intelligent
Deliver an advanced	automation and
as a competitive	base to offer a suite
digital experience for	analytical sciences to
advantage with	of financial solutions
our brand partners	drive incremental
continued innovation	that empowers
and consumers	insights, retention,
and a focus on reducing	today's consumers
	and operating leverage
our cost to serve

Key Foundational Elements

Active risk management	Prudent balance sheet management	Disciplined expense management

©2021 ADS Alliance Data Systems, Inc.

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Questions & Answers

©2021 ADS Alliance Data Systems, Inc.

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, pre‐provision earnings before taxes, adjusted EBITDA, adjusted EBITDA margin, adjusted EBITDA, net of funding costs, 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. In addition, adjusted EBITDA eliminates the effect of the gain (loss) on the sale of a business, strategic transaction costs, asset impairments, restructuring and other charges, and the loss on extinguishment of debt. Adjusted EBITDA, net is equal to adjusted EBITDA less securitization funding costs and interest expense on deposits. 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, non‐cash interest, gain (loss) on the sale of a business, strategic transaction costs, asset impairments, restructuring and other charges, and the loss on extinguishment of debt. 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.

©2021 ADS Alliance Data Systems, Inc.

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Appendix

©2021 ADS Alliance Data Systems, Inc.

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Key Business Metrics

	4Q20	4Q19	4Q20 vs	3Q20	4Q20 vs
	4Q19	3Q20
LoyaltyOne(in millions)
AIR MILES reward miles issued	1,355	1,486	(9)%		1,240	9%
AIR MILES reward miles redeemed	838	1,199	(30)%		687	22%
Card Services($ in millions)
Credit sales	$7,657	$9,297	(18)%		$6,152	24%
Average receivables	$15,759	$18,096	(13)%	$15,300	3%
Normalized average receivables*	$15,759	$19,368	(19)%	$15,356	3%
End of period receivables	$16,784	$19,463	(14)%	$15,599	8%
Total gross yield %**	22.3%	23.3%	(1.0)%	22.5%	(0.2)%
Cost of funds	2.1%	2.4%	(0.3)%	2.4%	(0.3)%
Principal loss rate	6.0%	6.3%	(0.3)%		5.8%	0.2%
Reserve rate	12.0%	6.0%	6.0%	13.3%	(1.3)%
Delinquency rate	4.4%	5.8%	(1.4)%	4.7%	(0.3)%
Return on equity	16%	23%	(7.0)%		14%	2.0%

• Normalized receivables includes held‐for‐sale receivables **Revenue divided by normalized receivables

©2021 ADS Alliance Data Systems, Inc.

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Additional Metrics and Ratios

Combined Banks Capital Ratios	1Q20	2Q20	3Q20	4Q20
Common equity tier 1 capital ratio	15.9%	18.3%	18.8%	18.4%
Tier 1 capital ratio	15.9%	18.3%	18.8%	18.4%
Total risk based capital ratio	17.3%	19.7%	20.1%	19.7%
Tier 1 leverage capital ratio	12.8%	14.2%	16.1%	17.1%

©2021 ADS Alliance Data Systems, Inc.

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Financial Results - Quarterly

($ in millions, except per share) Total revenue

Total operating expenses, excl. provision for loan loss Provision for loan loss Interest expense

Total earnings before tax (EBT)

Income tax

Income from continuing operations

Income from continuing operations per diluted share Diluted shares outstanding

Pre‐provision, pre‐tax

Core EPS - diluted

4Q19	1Q20	2Q20	3Q20	4Q20
$1,461	$1,382	$979	$1,050	$1,110
771	562	555	552	699
381	656	250	208	152
142	139	128	115	113
$167	$25	$47	$176	$146
37	(5)	9	43	53
$130	$30	$38	$133	$93
$2.74	$0.63	$0.81	$2.79	$1.93
47.6	47.7	47.7	47.8	48.4
$548	$681	$297	$384	$299
$4.12	$0.75	$1.86	$3.45	$3.31

FY19 FY20

$5,581 $4,521

3,086 2,367

1,188 1,266

569 494

$738 $394

166 99

$573 $295

$11.24 $6.16

50.9 47.9

$1,926 $1,661

$16.77 $9.39

*******************************************************************************************************

(Including discontinued
operations)		$30	$38	$133	$12
Net income	$98	$278	$214
Net income per diluted share	$2.05	$0.63	$0.81	$2.79	$0.25	$5.46	$4.46

Totals may not sum due to rounding

©2021 ADS Alliance Data Systems, Inc.

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Financial Results - Segments by Quarter

($ in millions)	4Q19	1Q20	2Q20	3Q20	4Q20	FY19	FY20
LoyaltyOne	$332	$198	$151	$185	$231		$1,033	$765
Card Services	1,128	1,184	828	866	879		4,548	3,757
Corporate/Other	‐	‐	‐	‐	‐	‐	‐
Total revenue	$1,461	$1,382	$979	$1,050	$1,110		$5,581	$4,521
LoyaltyOne	$58	$47	$24	$18	$22		$103	$111
Card Services	162	32	70	212	187		992	501
Corporate/Other	(52)	(53)	(47)	(55)	(63)		(356)	(218)
Total earnings before tax (EBT)	$167	$25	$47	$176	$146	$738	$394

Totals may not sum due to rounding

©2021 ADS Alliance Data Systems, Inc.

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Card Services Sales Data

Active program credit sales by product

19%	19%	16%	19%	19%
46%	37%	37%	38%	41%
35%	44%	47%	44%	41%
4Q19		1Q20	2Q20		3Q20	4Q20
		Co‐Brand		PLCC		Big Ticket

$ in billions

$1.6							$1.4
$3.7	$1.1			$1.1	$3.1
		$0.7	$2.2
	$2.1
	$1.6
$2.9	$2.4	$2.0	$2.5	$3.1
4Q19		1Q20	2Q20		3Q20	4Q20
		Co‐Brand		PLCC		Big Ticket

Normalized average receivables balance by product

30%	30%	31%	31%	30%
43%	44%	42%	41%	41%
27%	27%	27%	28%	30%
4Q19		1Q20	2Q20		3Q20	4Q20
		Co‐Brand		PLCC		Big Ticket

Totals may not sum due to rounding

$ in billions

$5.9	$5.5	$5.0			$4.7
			$4.8
$8.4	$8.1	$6.8	$6.2	$6.4
$5.2	$5.0	$4.4	$4.3	$4.7
4Q19		1Q20	2Q20		3Q20	4Q20
		Co‐Brand		PLCC		Big Ticket

©2021 ADS Alliance Data Systems, Inc.

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Card Services Sales Data - Digital Engagement

Active program digital sales as % of

total active program sales

		54%
33%	36%	40%	42%

Active program new digital accounts as % of total active program new accounts

59%

28% 27%

33% 34%

4Q19

1Q20

2Q20

3Q20

4Q20

4Q19

1Q20

2Q20

3Q20

4Q20

©2021 ADS Alliance Data Systems, Inc.

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Monthly Net Loss Rate Trend

Consumer relief program caused timing‐related volatility in monthly loss rate*

• The COVID‐related customer relief program represented 3% of total card receivables as of December 31, 2020 as the balance continues to decline
• 72% of enrollees made a payment in 4Q20, in line with 3Q20

Given the monthly volatility, the 2H20 average net loss rate of 5.9% provides

a better indicator for near‐term future loss expectations

					8.7%
7.2%
6.8%					Expectation for
7.2%
					1Q21 losses to be
	6.5%	5.8%			5.9%	in the range of
			2H20 average loss
			5.3%	5.3%
				rate of ~6%
				5.2%
		3.9%	3.8%
Jul	Aug	Sep	Oct	Nov	Dec
		Running average		Net loss rate

• In response to the COVID‐19 pandemic, the Company offered COVID‐related customer relief programs to affected cardholders. Those accounts receiving relief may not have advanced to the next delinquency cycle in the same timeframe that would have occurred had the relief not been granted, thus impacting delinquency and net charge‐off rates and their timing.

©2021 ADS Alliance Data Systems, Inc.

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