Alliance Data Systems(US:BFH)2023-01-26 16:54Financial Data and Key Metrics Changes - Revenue for Q4 was $1 billion, increasing 21% year-over-year, driven by higher average loan balances and improved loan yields [10] - Full-year revenue reached $3.8 billion, a 17% increase compared to 2021, while total non-interest expenses increased 15% [11] - Pretax pre-provision earnings increased 19% versus 2021, indicating strong quality of growth [6] Business Line Data and Key Metrics Changes - Bread Financial credit sales were up 11% year-over-year to $32.9 billion, with average loans increasing 13% [11] - Average and end-of-period loans for Q4 were each up 23%, driven by new program additions and organic growth from existing brand partners [21] - Retail deposits on the Bread Savings platform increased to $5.5 billion, a 72% year-over-year growth [25] Market Data and Key Metrics Changes - The net loss rate for the quarter was 6.3%, slightly better than earlier projections, with a full-year net loss rate expected to be approximately 7% [55][56] - The delinquency rate for Q4 was 5.5%, slightly below the previous quarter, following typical seasonality [32] - The reserve rate increased to 11.5% due to elevated inflation and increasing consumer debt levels [33] Company Strategy and Development Direction - The company is focused on ongoing technology investments, with over $125 million spent in 2022 on modernization and digital advancement [16] - A new long-term credit card relationship was signed with Hard Rock International, expanding the company's reach across generations [18] - The company plans to build on its 2022 momentum in 2023, despite a challenging macroeconomic landscape, with a strong business development pipeline [19] Management's Comments on Operating Environment and Future Outlook - Management expects inflationary pressures and gradually rising unemployment levels to impact the business in 2023 [19][37] - The company remains confident in its ability to manage through economic cycles, leveraging its differentiated underwriting and credit risk modeling [8][27] - Management anticipates that the net loss rate will hover above the historic average during challenging economic periods [8] Other Important Information - The company was recognized for its commitment to environmental, social, and governance (ESG) practices, earning a spot on Newsweek's 2023 list of America's most responsible companies [17] - The company has secured renewals with brand partners representing approximately 85% of year-end 2022 credit card balances through 2025 [23] Q&A Session Summary Question: What are the expectations for the reserve rate and its components? - Management expects the reserve rate to increase due to the sale of the BJ's portfolio and continued economic weakness, potentially reaching around 12.5% by year-end [60][61] Question: How is the competitive environment affecting the company? - The competitive environment remains strong, with the company focusing on profitable growth and responsible portfolio expansion [49][68] Question: What are the expectations for delinquencies and losses in 2023? - Delinquencies are expected to trend higher due to inflationary pressures, even with a strong labor market, impacting payment abilities for moderate-income families [82][83] Question: How will late fees be affected by potential regulations? - The company is prepared to adjust to any regulatory changes regarding late fees, similar to past adjustments made during the Card Act [74][75]