Alliance Data Systems(BFH) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue increased by 1% to $1.44 billion, while EPS decreased to $2.41 per share due to restructuring charges and early debt retirement costs [15][17][29] - The company projected end-of-period receivables to be approximately $19.5 billion, down from the previous quarter forecast, with Q3 ending position at $17.9 billion [14][29] Business Line Data and Key Metrics Changes - LoyaltyOne reported a revenue decrease of 6% to $246 million, but adjusted for foreign exchange and presentation changes, revenue increased by 1% [19] - Card Services revenue was up 3%, marking a turnaround from a 4% decline in the previous quarter, with average receivables increasing and yields stabilizing [21][22] Market Data and Key Metrics Changes - The company has shifted its focus to healthier verticals, with over 60% of card receivables now coming from these newer verticals, up from less than half in 2016 [12][13] - New vintages now account for over 35% of card receivables, indicating a strategic shift towards growth in vibrant brands [13] Company Strategy and Development Direction - The company is undergoing a transformation to streamline operations and focus on differentiated value, aiming for consistent, sustainable growth [6][7] - Future growth is expected to come from expanding into new markets and leveraging emerging brands, with a commitment to technology and digital solutions [9][10] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges faced during the transformation but emphasized tangible progress and a commitment to improving the business model [5][28] - The outlook for 2020 includes expectations for lower operating expenses, low single-digit revenue growth, and mid- to high 20% growth in core EPS [30][31] Other Important Information - The company completed its corporate restructuring related to the Epsilon sale, with a focus on maintaining a healthy balance sheet and exploring strategic investments [28][39] - Management indicated that they are committed to cleaning up the balance sheet by disposing of held-for-sale portfolios [61] Q&A Session Summary Question: Clarification on guidance data points for revenues and expenses - Management acknowledged potential risks to EPS targets if the Fed lowers rates further, but expects yields to remain flat [34][35] Question: Capital management and board changes - Capital ratios are managed across three buckets: balance sheet health, strategic investments, and stock repurchases [39][40] Question: Portfolio acquisitions and health - Current guidance does not include large-scale acquisitions, but there is potential for healthy new vintages in 2020 [44] Question: Revenue and earnings growth rate - Long-term growth is expected to be high single digits for both revenue and throughput, with operating leverage driving low double-digit earnings growth [48][51] Question: Risk management and portfolio health - The company monitors the financial health of brands closely and has factored potential brand failures into their long-term plans [53] Question: Held-for-sale portfolio timing - Management is actively negotiating on portfolios and aims to clean up the balance sheet by year-end [61] Question: Core EPS outlook and GAAP translation - Core EPS improvements are expected to align closely with GAAP earnings, with no significant differences anticipated [64] Question: Reserve build and growth expectations - The increase in reserves is primarily due to higher receivables, with stable credit metrics expected moving forward [66]