Q3 2020 Alliance Data Systems Corp Earnings Call
[music].
Hello, and welcome to Alliance data third quarter 2020 earnings Conference call. At this time, all participants have been placed on a listen only mode. Following today's presentation. The floor will be open for your questions. If youd like to ask a question. Please press star one on your telephone keypad in order to view the company's presentation on the website. Please remember to turn off.
The pop up blocker on your computer.
Now my pleasure to introduce your host Ms. Vicki Nacala Advisory partners Ma'am the floor is yours.
Thank you operator by now you should have received a copy of the company's third quarter 2020 earnings release.
If you haven't please call advisory partners it to one to seven 505 800.
On the call today would have Ralph one Drydock, President and Chief Executive Officer of Alliance data and Tim King Executive Vice President and Chief Financial Officer of Alliance data before.
Before we begin I would like to remind you that some of the comments made on today's call and some of the responses to your questions may contain forward looking statements. These statements are subject to the risks and uncertainties described in the company's earnings release and other filings with the FCC.
Alliance data has no obligation to update the information presented on the call.
Also on today's call our speakers will reference certain non-GAAP financial measures, which we believe will provide useful information for investors.
Reconciliation of those measures to GAAP will be posted on the Investor Relations website at alliance data that Tom with that I would like to turn the call over to Ralf contractor roles.
Thank you Vicky and thank you to everyone for joining the call. This morning.
An exciting week with a five sort of announcement as well as the announcement. This morning of our agreement to acquire Brett.
The new capabilities digital advancements technology upgrades and efficiencies from these transactions better position the company for sustainable profitable long term growth.
I would like to start today's call by thanking our associates and leaders.
For all of the alternate accomplished this quarter, our associates continue to step up to the challenges and changes brought forth by the pandemic through the dedicated service move the company forward on its strategic goals.
Starting on page three here is an overview of the key highlights of the third quarter. The company posted strong financial results, which I will touch on briefly then Tim will provide more color.
As is evident with our recent announcements we are making substantial progress on our strategic priorities and making significant investments in our business.
We will address these themes in more detail throughout the presentation and then provide insight on our focus going forward.
Over year, we're seeing encouraging signs of growth across our channels and industry verticals like.
Like most we are seeing the benefit of stores reopening and customer spend beginning to increase.
While the positive September us retail figures are very encouraging we remain focus due to the many uncertainties our economic Ari.
Our economy faces among them the potential resurgence of the virus.
We remain cautiously optimistic on the future and are prepared for potentially uneven, but gradual economic recovery for the us and world economies as.
As you can see on the bottom left chart, our sales channels continue to rebound from the lows during the shutdown period earlier this year.
The chart on the bottom right provides a channel detailed for the 28% sequential growth in a third quarter versus the second quarter of 2020.
We saw a substantial improvement in multichannel spend as stores, we opened leading to a sequential 92% increase in store in person brand sales at the brands brick and mortar locations.
We are seeing more purposeful shopping.
In store traffic is still down versus a year ago, but when a customer or consumer does come into a store they are spending more.
On non brand sales on our co brand cards increased 27% sequentially.
We are seeing an increase in spend in everyday categories for our co brand cards and are pleased with the early results from our commodity general purpose card, which we launched late in the third quarter with stores, we opening in the third quarter consumers reverted back to multi channel spending resulting in a pullback in online sales.
But an overall increase in total spend.
Also in the quarter, we launched Salon centric, which is part of l'oreal.
The success, we have seen in beauty as a category leader is a good blueprint for our ongoing expansion into additional fast growing industries.
The launch of our new commodity general purpose Cashback card has exceeded our early expectations. We are currently offering the car to select customers and seeing strong activation rates and early engagement, especially among millennials.
The development team for this car has extensive experience working with similar offerings and is confident in the value of this card brings from both retention and growth.
In the situation, where a partner leaves or is having financial troubles. We can strategically also the commodity car to regain retain card member relationships and drive increased sales.
Let's turn to page seven to review the performance for Loyaltyone, which includes the air miles rewards program in Canada, and a Netherlands based brand loyalty.
The segment's third quarter revenue benefited from improving business conditions in most parts of the world when compared to the previous quarter as I mentioned earlier and as displayed in the graph on the bottom of the slide reward miles issued rebounded in the quarter from the low in the second quarter recall that we recognize most of our revenue when the car.
Elect to redeem their miles, but a good indicator of our future revenue is a miles issued.
Given the lingering effect of COVID-19 on travel air miles continues to pivot, which rewards portfolio, which emphasize more non travel app options, such as merchandise to drive higher customer redemption rates, our merchandise redemptions increased double digits as we focus on stay at home type products.
We're also adding added streaming services for games and movies to our rewards portfolio.
Brandloyalty revenue improved 37% from the second quarter 2020 as areas around the world began to re opened during the quarter. We are closely watching the pandemic inflection trends, especially in Europe as cases are beginning to rise.
Slide eight provides a look at our digital engagement statistics for card services consumers are rapidly adopting technologies that simplify how they purchase manage their accounts and engage with payments our suite of digital capabilities reflects the changing landscape by creating a seamless process.
For customers to adapt apply for and use payment options. Several of our brands are now leveraging our patented frictionless capabilities across all channels to drive easy applications, including QR code text and applied functionality as well as a dynamic real time offer messaging that.
Brings payment offers to the forefront of the customer shopping journey.
45% of our card services credit sales in 2020, we are made online up by one third year over year, 70% of applications on our digital and 78% of our bills are paid digitally underscoring the importance of investing here and the success of our efforts to date.
Turning to slide nine I will speak to a number of ways, we continue to enhance our technology capabilities.
As discussed during the second quarter call. We are focused on expanding our product suite with additional product offerings like buy now pay later and installment loans the acquisition of bread with an efficient way to expand our offerings and gain access to a broader audience and younger.
Demographic the deal jumpstarts, our ability to offer these products to our brand partners, while bringing additional opportunities to leverage off and offer our core products to those customers.
Breads, leading fintech platform advances, our digital capabilities and offerings given breads advanced technology position in this space, we determined that the right strategy. In this case was to buy rather than to build or partner.
Our recently announced strategic agreement with five service offers a number of benefits we leverage Pfizer is highly flexible and scalable credit processing platform to benefit our brand partners and card members, while driving operational efficiencies.
Through our relationship with Pfizer, we will improve our brand partner conversions and speed to market, including quickly and seamlessly, adding new products and capabilities that benefit our partners and our card members. The platform enables efficient integration and use of mobile wallet and virtual cards, while supporting our data and Anna.
Analytics capabilities importantly, the agreement provides efficiencies that reduce our cost to serve.
We plan to reinvest those cost savings in digital capabilities and other growth initiatives.
During the third quarter, we announced the launch of our enhanced digital suite. This.
This suite of digital applications and capabilities helps our brand partners capitalize on the accelerated growth of ecommerce.
The suite promotes credit payment options earlier in the shopping experience and pre spring prescreened customers in real time, allowing for immediate credit approval without leaving the brands partner site.
We also support these offerings with enhanced digital marketing and payment tools combined we expect these offerings to bring through more qualified applicants are higher average purchase value at a higher sales conversion, making our suite of services more valuable to our brand partners.
Slide 10 provides provides details on announced acquisition of bread. We are excited to welcome breast talented employees to alliance data.
The addition of Fred's highly skilled development team will boost our innovation potential with new perspectives and collaborative thought will recur we will create a new innovation hub in New York City to drive digital advancements throughout the organization.
Brad is an ideal partner to strengthen the expansion of our verticals and addressable and addressable market of small and medium sized merchants, while providing our existing partners. When addition, additional white label product solutions.
With the acquisition alliance data uniquely positioned to provide a branded full spectrum payments suite for our partners.
The partnership expands the growth potential for alliance data and Spurs, our digital innovation and develop.
Moving to slide 11, we made strong progress on our recover rebuild and regrow action plan in the third quarter.
The recovery components are nearly complete and our efforts to rebuild and we grow our advancing more quickly than we had originally planned due.
Due to the hard work and resiliency of our associates, we have successfully adapted to a different way of working and in many ways improved and simplified our processes. We are changing the landscape of where and how work gets done.
Our new flexible adaptive workforce and evolving physical workplace strategies effectively balanced cost efficiencies with high levels of service and support.
Tim will highlight a few of the many actions we have taken to reduce our fixed cost base and improve our underlying financial position over the past five quarters.
One example of this is our announced transition to five serve which will provide for a lower cost scalable growth, increasing our ability to allocate capital to areas of strategic differentiation.
On the on off on rebuilding actions, we have Ics, we are expanding digital offerings and upgrading platform speed flexibility and technology.
These actions along with our ongoing strategic initiatives, which I will highlight later in this deck position alliance data for sustained profitable long term growth. This.
This growth will be supported by our regrow action, which include focused investments, especially in digital enhancements and operational and product efficiencies putting this all together we have the opportunity to unlock long term value for our shareholders I will now turn the call over to attend to cover the financials.
Thank you Rob and good morning, everyone I will start on slide 12 to review our results for the third quarter.
During the third quarter revenue was down 47% versus last year as a company and both the segments were impacted by the Carbonite Kate.
The decrease in revenue was primarily tied to production normalized card receivables or card yields.
For the fed rate cuts.
As well as lower redemption levels of Loyaltyone.
The year over year improvement in earnings before taxes.
It was impacted by $72 million lawsuit extinguishment of debt that $55 million of restructuring charges in the third quarter of 2019.
Adjusted EBITDA net decrease for the quarter due to the decline in revenue, partially offset by the cost reduction driven by lower volumes at a cost savings actions.
Slide 13 provides an overview of some of the key business metrics for the company.
Starting at the bottom left we show a normalized AOR, which would include held for sale versus our total credit sales for the quarter, we saw sales coming in at $6.2 billion, which was down 21% year over year.
However, when compared to the prior sequential quarter, we did see a rebound a little bit low of $4.8 billion up 28% sequentially.
There is still pressure they are but we have begun to see a rebound our sales and would expect the typical fourth quarter seasonality to increase their balances at year end.
Moving to the lower right. We also saw a rebound our yields were.
Recall, the second quarter, we were down 350 basis points year over year to a total bid low of 20.4%.
Since the second quarter, we have rebounded 210 basis points that were still off the prior years number by 220 basis points.
As I discussed during the second quarter fall, our yields have been under pressure due to both the customer relief programs.
And the fed actions with fewer accounts of the program. We have now we are this year recovery at our yields with expected yields remain in this range.
Finally, turning to expenses, we continue to make progress on our year over year expense management initiatives.
We continue to benefit from the ongoing reductions of our real estate costs employee cost and other operating expenses.
For instance, or investment or automation, specifically robotic process automation or bots are taking costs out of our servicing level through automating processes, which has to be done manually.
Bots are now provided approximately $50 million of run rate savings and we'd anticipate we continue to fund further opportunities with this technology.
Our expense areas, we have been successful, reducing both legal consulting and bought expenses.
Overall, we realized approximately $50 million of fixed expense savings in the third quarter when compared to the third quarter of 2018.
Let's turn to page 40, we'll spend a little time talking about our cardinal number payment behaviors.
As we saw last quarter card member payment trends remain favorable and continue to improve.
As shown in the table, 84% of accounts made a payment in the third quarter up from 82% in the second quarter.
This is above the levels we saw preclude.
Additionally, we have seen a reversion to normal for the percent of our card members, who pay us in full at 23%.
Dallas is there a cobra related cost relief Burgos now represent 3% of total card receivables and continued declines we will ask for.
Importantly, 73% of accounts that are all these programs are now making payments up to 55% of the previous quarter.
While we are pleased these trends we are not surprised.
Our disciplined and seasoned underwriting process is a core strategic advantage of alliance data. It is a pillar of our cost of our company.
Turning to slide 15 over to starting the upper left thing a little bit of time talk a little bit about our losses.
For the quarter, we finished a loss rate of 5.8% of 28 basis points versus the prior year.
However sequentially, we were down 180 basis points, mostly due to the strong payment behavior and the actions we have taken with our customer relief programs.
This compares favorably to our average net loss rate over the for the past 15 years and is well below the peak we saw in 2009.
Like others in the industry, we do expect pressure this number as we move into 2021, especially the latter half of next year.
However, we do not expect to be near our historic high peak charge offs as much stronger risk management tools advance underwriting models, along with improved over to Lori card member base.
Turning to our allowance on the right hand side of the page our allowance remains at approximately $2.1 billion for reserve rate of 13.3% unchanged from the prior quarter.
We did release, a small amount of our balances due to decrease in receivables is.
It is important to note that the reserve level contemplates assumption and Moody's most adverse economic outlook, the EPS for which reflects only a 4% probability that the economy will perform worse, which we feel is appropriate given the uncertainty of the economy now and into 2041.
Moving to slide 16.
As long as part of our most recent bond offering we were able to secure additional flexibility with respect to our term debt.
At a high level, we have been able to relax our covenant threshold through 2041 ended the first half of 2022.
Additionally, as outlined here, we have been able to extend the maturity of our overall debt.
A year ago, we had almost $2.9 billion of debt maturing and one in three quarters year we.
We now have been able to lot of this out including pushing out the closest maturity coming due is 1.75 years to 2.25 years and decrease the sizes maturity by about one half.
Well certainly not done addressing our balance sheet. Our treasury team has made significant inroads, giving us additional flexibility in time.
Slide 17 covers both our corporate and bank liquidity in capital as.
This last quarter, accompanied parent company liquidity improve with overall liquidity, increasing $100 million to a total of one point.
We took the opportunity to pay down our revolver and as discussed on the prior page extended maturity of a corporate debt.
At the bank level cash is down sequentially as we were able to pay off some of our liabilities, while maintaining liquidity ratio of 15.7%.
Capital has improved with a total risk based capital ratio of 20.1% up 40 basis points sequentially.
We also were able to reduce the condo to the quarter all three quarters of the quarter.
I'll now turn it back over to Ron.
Thanks, Kim Slide 18 provides an outline of our strategic initiatives.
We are opportunistically investing in strategic areas highlighted on this slide as well as ramping up marketing spend and our growth verticals in the fourth quarter.
As part of our way forward, we are leveraging our technology and strategic advantage and continued innovation and a focus on reducing our cost to serve.
As evidenced by our recent announcements with five serve and Brad we are continuing to diversify and develop our product offerings to provide our partners with a full suite of payment solutions.
Digital advancement remains at the forefront of our development framework finally, our data science and analytics capabilities and insights remain a key strategic advantage and will continue to drive efficiencies and effectiveness for our business operations as well as for our partners.
But I hope you will take away from today's call is that we are making significant progress in a challenging economic environment, and we will emerge and leaner more focused and more profitable competitor.
Sharon we are now ready to open up the line for questions.
If you would like to ask a question at this time. Thanks Press Star then the number one on your telephone keypad. If you would like what's your your question press. The pound key first question comes from Ryan Nash with Goldman Sachs.
Good morning, Roger.
Right.
Maybe I'll start off with the deal you know clearly make strategic sense, just given the emergence of buy now pay later as a borrowing option for customers, but I guess can you maybe just talk about how you think about the strategic benefits of EPS versus other uses of capital and I guess just.
Given where the stock is trading today. It seems that you had to imply you could have reduced shares by a material amount. So I'm curious just how you weigh the long term strategic benefits versus the near term financial implications and then second can you still pursue other capital actions over the next few quarters, even in the face of it.
Yes, so I'll start and I'll ask him to chime in this is Ralph So I think a couple of things I think if COVID-19 has taught US anything it has taught us the value of E commerce and you've seen that in the first and second quarter and will continue to see ecommerce pretty much explode. So for US This investment was paramount to the.
Technology that brings to the table and the talent they bring to the table is very much in our strategic plans as we move forward and we will can and so I think long term. This is the right decision for us.
Our cash flow.
Our cash items and liquidity have improved over the course of the year and that was a good thing.
The bond offering health that spread out our debt as Tim talked about so I think we're in a reasonable position. If there are other uses of capital to take advantage of that but I see this as a strategic and long term benefit for for Ats, Tim anything yet.
I would just reiterate what Ralph said clearly the recent performance has allowed us to invest in this technology, which we've talked about a number of calls we feel very very important strategically.
Well of course, maintaining the balance of flexibility, we have with apparel level.
Our capital allocation strategy remains.
We were finding things that we find our this important to our business of course, we're going to invest them, but from there of course, maintaining our dividend and not not doing any share repurchases.
Got it and if I can maybe switch gears to ask about growth. So you guys are really nice sequential improvement yet as it was highlight on the call balances in a sales are still down about 20% year over year. So can you maybe just talk about how from a year over year perspective, they trended over the quarter and second in the U.S.
Talked about Tim seem the expectation to see normal seasonal trends in Fourq. You do you think we've actually seen the bottom for receivables and assuming no major change in the macro to be actually begin to grow off of today's levels over the next couple of quarters. Thanks, Kevin obviously, the biggest unknown for all of US data is going to be co.
End of story openings.
Clearly, we put that out last quarter that the story opens a stay reopenings were very dependent we were very encouraged by the number of folks going back into the brick and mortar that Ralph went through that slide there.
There may be a little bit of pressure on our receivables from where we are now as we roll into 2021 as cobot.
Yes.
Starts to abate a little bit.
And news, who could have a little bit of pressure, but you know we start taking we're getting back to.
Normalized day or at this point.
Got it thanks for taking my question.
Next question comes from here back to Yang with Bank of America.
Joining me here.
Good morning, Thank you for taking my question.
I wanted to ask on the acquisition do maybe just a couple of quick questions just to start on the NPL in brand in particular can you talk about just what the accretion would it be three years.
I mean, you are being a pretty a good amount of the.
Purchase price it seems in my cash right I mean, I understand part of it is in stock, but wasn't bread profitable and then just related to that can you just talk about the economic returns of the product how does the revenue profitability model before from.
Your coal car products should we assume no look on as that product close our OE decline from their historic level or do you think you can get to see model leads.
Thank you.
Sure. So let me start with just talking about the accretion clearly we have not got into.
Into looking at the integration and what type of long term profitability will have we think avail phenomenal pressure in the next year or two may 2021, and 22, and then obviously going from there.
Those that dilution coming from just the increase in the share count.
So.
This is Rob I think.
We shouldn't think of this as a replacement of our product set but an enhancement to our product set and will attract new customers, particularly younger customers and who tend to use that is as a means.
To to pay for things so while we will add add to our revenue base.
I don't I don't see this replacing our existing products. In fact, we will migrate some of these customers to our existing products as we move forward. So I think it is an enhancement not a replacement.
Okay.
Great. Thanks for that and then just one other question Aneel I think slide five if I could just talk about credit sales.
I was surprised I mean, the print news clearly favorable but I was surprised by the online brand sales being negative nothing's a little different than what we've seen from some of the other payment companies regarding online is that just a function of your retail bought those though can you maybe just provide a little bit of color. There. When you think about it and think about.
The third quarter as opposed to the second quarter, we had.
Our traditional partners opening up their their their bricks and mortar locations and we have pent up demand for people to get out of the house and actually.
Get a change of scenery. So we saw we saw people shopping in the stores and if you look about that although our maybe online went down a bit.
Sequentially people shopping slows our sales were up 92%.
But if you combine those two sales were up.
In the quarter as I said, 28% sequentially. So while we saw a little bit of a dip in online sales, we saw an amazing increase and in store sales.
Yes. Thank you.
Next question comes from Sanjay Sakhrani with KBW.
Good morning, Tom.
Thanks, Good morning.
Maybe I'll start with credit quality, obviously had nice charts there that show.
Credit, obviously, performing quite well, but you've had the relief programs you've had stimulus.
It's going to be a little bit of an air pocket I don't know what you guys are doing with their relief programs are that those sunsetted are you still offering them, but but I guess just to think about the reserve rate and the migration going forward and the direction of credit quality.
Hence forth I mean, how are you guys thinking about.
Yes, hi, so I'd say, it's Tim yes, so clearly the quarter benefited for those relief programs.
That we were seeing back heavy use of those back in Q2, but.
But where we are right now so we would expect like most of the others in the industry to have pressure on our credit and of the 2021 specific in the latter half of 2021.
One is you know the relief programs have kind of gone a little bit back to normalized levels.
In my prepared remarks, I talked about being about a 3%.
Where release programs on our chip and other early programs and Thats pretty much the back to normal pre coated levels.
And do you expect the reserve rate to sort of stabilize here or can it go higher here because I know you guys didn't really move down a whole lot, yes that clearly we're anticipating the increase in charge offs.
And a fairly dry.
Tony in and asked for level with our reserve rate.
If the Cove it starts to abate.
We continue to see the strong payment behavior weve seen for the last six months on this opportunity and our reserve rates.
Okay and then my follow up question unrelated to that maybe for Ralph is I.
I guess.
You guys talked about strategically needing to beef up on technology as Bret solve for everything you needed or do you need more investment in technology from here on out well no technology like anything else is evolving so what right does is it really puts us.
In a really terrific competitive position, but as I said, our reinvestments going to be in digital enhancements going forward as well as products. So while twelvea in puts us gives us additional capabilities, we're not done yet.
Okay and would you expect to solve for that through acquisition or through internal investment well.
The acquisition of Greg gives us tremendous talent in digital and I'm I'm looking forward to working with that team and helping having them help us solve our go forward our go forward.
Endeavors.
Got it thank you.
Next question comes from Chris Kennedy with William Blair.
Alright, Bob.
Hey, good morning, Bob Napoli here.
Thank you for the questions.
Just following.
Following up on on Brad.
Ralph.
I think.
Alliance data has been some of I'm sure several of your customers use other buy now pay later programs might confirm or clarify or ask or pay.
And then I had imagined youve seen how.
The two products work in tandem.
So I'm just wondering what your.
Thoughts are on how this enhances your your cross sell capability.
Would you be able to replace some of those other buy now pay leaders in what is.
How does the technology it Brad compared to a net from or acquiring went after paying.
Yes, I think a couple of things one is certainly we're going to offer these to our to our partners I am I think it gives us a strategic advantage, it's a white label offering so that means that.
The customer doesn't feel that they are going yet to another company for some kind of credit.
They feel they are invested in the brand and buying from and this is to them and extension of that brand I think thats tremendously important.
So I'm excited about that and I think that gives us an advantage to potentially replace some of those third parties honestly.
And we're not we're not disclosing it wasn't a public the revenue and EBITDA I just I'll go back to that it should be nominal normal pressure on us in 2021, and as we move into 22 and 23, clearly we expect some fairly significant revenue because we'll be able to integrate them across our board with all 160 of our different partners.
Thank you appreciate it.
Next question comes from David Scharf with JMP Securities Good.
Good morning, David.
Maybe the first one I'm just.
Just shifting gears to the expense side can you shed a little more light.
And what the anticipated savings are from converting over to buy serve I assume it's the first data card card processing platform.
But you know in in whether that transition to outsourcing was more expense driven or were there.
Kind of a.
You know speed to market issues that were that were more impactful. So I would say, it's all of the above.
You know, we wouldn't disclose expense savings back to ensure those expense savings every have well certainly reinvesting in digital and product capabilities, but the ability for the transition of five cents. If you think about it its speed to market more products that will that will certainly help help our.
Be help our partners and for US It just it will lower our cost to serve as we move forward and just give us more flexibility in the marketplace to scale up and down as a marketplace moves.
Got it.
Understood and then as a follow up on it because it's been a familiar refrain on that on the call just focusing on.
By now pay later offering again it may be it is at a higher level.
Yeah, I understand it's viewed as kind of complementary it adds a potentially a younger demographic isn't upsale opportunity.
It is as we think about just private label the value proposition of private label is a product that it seems like as the war its commerce becomes more and more digital seem.
It seems like the barriers to entry.
For new competitors to offer loyalty tools like buy now pay later increase as well and.
I'm wondering is there any feedback you're getting from your specific retail partners.
Without either a.
HM.
Whether the loyalty and value add is associated with a private label card.
It's been impacted at all by some of these other types of shopping card conversion offerings.
In east specifically have they provided any data.
On home.
How many of your end consumers that have committed to issue cards have started to use in the alternative.
By now pay later option in the shopping cart checkout. So let me take just let me say the person.
No I I believe the private label card there will always be a place for private label and co brand cards, because he is an affinity to the brand.
When you think about other entrants yeah. They they don't they're not connected to the brand. So it's a pretty you know its an ongoing transaction. So there's no brand isn't any there's no brand rewards and that we think is it's still a barrier to entry yeah going forward and.
And in terms of your second question in terms of how many of those clients are using a buy now pay later I'll respond alone I'm not aware of any specific data that our partners have supply now our partners do do have them on their site, which was one of the reasons. We certainly wanted to invest in a you know a leading edge.
Fintech.
That has so much great talent and sat and such a digital platform. That's why we didn't invest in is we want to be the supplier to our partners Oh, there well that payment methods and give them a full suite of ways for customers to engage with them and and purchase bigger baskets and par.
Got it very helpful. Thank you Ralph.
Next question comes from William Ryan with Compass point Martin.
Morning Bill.
Hi, good morning, Thanks for taking my questions, one kind of granular in one a little bit bigger picture, but.
On the grain or side and you look at the trust data it looks like there's a little bit I kinda called it a credit bubble kind of working its way through.
On the back side of it delinquencies are very low again, but it looks like you might be kind of running into a little bit charge off had been maybe in November and December.
As I recall your kind of restrictive on some of the accounts that you gave for parents to is <unk> and I was wondering kind of comment on what that might be or what it might reflect.
And then second.
As it relates to Brad.
You know.
Looking at the buy now pay later one of the comments partners that had is about economics of the business being detrimental, but more importantly did brought up several times in the call. It is the loyalty side of the equation.
Do you know the retailer can I assume they probably would would they have the ability and I don't know necessarily like this where but to steer towards their.
Their product offering that you're going to be happy that you're going to have because it seems like they want to create a warranty side out of this buy now pay later over time.
Yes, So let me take the second one personnel asked him to comment on your on your on your first question.
I do think that the then our partners will.
As they do today steer their customers to our products because its beneficial to them to do that so I would say this is just yet another product or another you know basket another product in a basket that into use as a loyalty device and that's why we are you know I'm, particularly excited that it's a white label solution and we didn't partner.
Third party wherever would be a you know just a a name out there and it'd be a service rather than a than any a you know a customer a customer engagement.
Yes. So then when you get to the trust status. That's just a timing issue with some of the cost relief programs, we're getting a little bit of pressure. There that are just at the trust level as I mentioned, the the cost relief programs or have a benefit overall.
Okay. Thank you.
Next question comes from Jeff Adelson with Morgan Stanley Good morning, Pat.
Question.
I know a lot has already been set on bread, so far but maybe another question. There you said that you're making that available to your retailer soon but just wondering how fast do you feel like you can get that back them up to speed with your retailers is something it's going to take a couple quarters or you think you'll pick.
A few years to really get entrenched with their client base and then.
I know you've already covered a lot on like what kind of clear retailers are giving you, but maybe to dig in a little bit more in what percentage maybe of your retailers do you think are actually going to use. This is is this something where some can turn it on and turn it off or are you just going to kind of make it available to everyone and just let the customer just kind of.
Dictate usage yeah.
Yeah, just a couple of things well the the announcement is an hour and a half fold.
Im sorry, now are 45 minutes old so as as you would expect we are we are just starting to work with our brand partners on on integration and who might want it for how we might go about how we might do that the beauty of this platform is that integration happens pretty quickly.
It's it's it's less that it's like 40 day to 50 day integration and a brand partner that is that is is key for us in terms of the number of brand partners. We had in the demand we would be expecting for this as we go forward.
And so from my perspective, you know, we will begin working with our brand partners as soon as we hang on from this call.
Got it Okay, and then maybe just shifting to general purpose, you're clearly moving into a new payment capability with Brad I'm feeling general purpose could be another growth channel for you I was just wondering if you could give us some insight into where you hope to take that program over the medium to long term is that right.
The more just a backstop against retailer bankruptcies or do you view that as a real opportunity.
Opportunity to really drive growth outside that and then separately I know you've also covered a lot about your strength and UTI and some of these other non.
Non specialty retailers outside there is there an opportunity for you to do a little bit more outside of consumer on the small business side.
Yeah, So let me see.
So we we let's define general purpose I define general purpose as as as two things one being our co brand cards and the second one being the community cards that we just launched so if you think about our co brand card.
In our in our partnership with Pfizer, we now have a.
Coburn capabilities that we can compete head to head with anybody out there again, that's a certainly a beauty of moving to the five say program very quickly not only do we have capabilities. We also have experience. So speaking for myself and Dahlgren and I'll just be born into the organization, we will manage large co brand Paul.
Oh, Yes, I think it is a it is a terrific part of our business each portfolio in our in our in our entire portfolio place different roles. So although the margins maybe a little a little.
Dinner on the co brand side, they certainly bring credit quite high credit quality and that better credit quality enables us to take a little bit more risk on the private label side. So we are looking for that balanced portfolio as we as we move forward as far as the commodity card early days again really excited about the engagement and the and.
The early spend we're seeing and the fact that it's attracting millennials, but at this point, we're thinking about as right now is to save tool that doesn't mean, we won't pivot sometime in the future, but when you either you know when you part ways with a partner and you retain the receivables and you could you know.
You give those card members the ability to still spend with you and engage with you. That's a great thing and then as a and doing the same thing with a partner.
As you know bankruptcies is two times when a partner does liquidate saving those card members to ensure that they are still going to pay down their debt as well as you know engaged with you and and build another receivable is a is a terrific use of that product.
And Jeff as far as the question around the businesses, we do have the capability that TV small business loans. Most of those are going to be attached to small you know a single.
You know sole proprietors et cetera, we already have that ability.
I've got a big focus I just want to make sure that if it's a consumer that running a business that we continue to be able to underwrite those folks.
Thanks for taking my questions.
Once again to ask a question. Please press star one on your telephone Keypad next question comes from Michael Young with Jewish Securities. Good.
Good morning, Michael.
Good morning, Thanks for taking my question.
I know we've talked a lot about spreads are far but was curious maybe just on the retailer is actually on the kind of more of the core business.
There was a lot of noise made of bankruptcies in issues there, but just wanted to get an outlook on what's going on kind of the bankruptcies versus the new additions of new retailers and kind of how those are trending.
Sure. So you know as you guys know as you know when we think about bankruptcies since two types right is chapter nine in chapter seven and the chapter nine bankruptcy is our reorganization I'm sorry chapter 11 in chapter seven my apologies.
The chapter.
Chapter 11, bankruptcies or a reorganization of the of the partner and that results in you know potentially store closings, but that said, we still continue to transact with the partner we still continue to acquire acquired cars and we still continue to have market to the partner, albeit maybe when the partner comes at a chapter 11, they may have less physical.
Patients that is why we are investing heavily in digital so when that part of the mergers and they are a bigger.
A bigger part of your business is digital will be right in that channel, where the customer wants to shop in terms of liquidation or chapter seven.
Bankruptcies.
That's why we.
We certainly are have the community card is a safe tool, but if you remember in chapter seven bankruptcies, where where the customer is our its a card member we actually Oh, you know margins improve in a chapter seven bankruptcy during early liquidation.
As far as what I see going forward, you know stressful time for retailers, but we haven't seen any other retailer right now tell us that you know they're entering into a into an 11 or seven situation itself. One of the things. We noticed was though is as we came in at 2020, there was a number of retailers that had weak balance sheet.
As you know cobot hit them really hard and they have you know obviously done what they've had to do some reorganization. The retailers, we have locked up a pretty strong balance sheet and I've been able to withstand this it looks like that's starting to come back out so for lack of a term it feels like we flushed out some of the weaker players on the retail side.
Okay. So net net from here you think you can kind of be in a net add position in terms of retailers and volume even ex kind of the macro.
Yeah. So I think if you look at.
Let's take the one category, we talked about today beauty, we see you know even year over year improvement in beauty and we're a market leader. We've got you know over 50% of the market share. There. So we'll continue to add add there. So we see that as a as a really good vertical for us the other verticals that we're thinking that we're adding to our home goods home improvement that's been really power.
Well for us so we're seeing improvement there as well. So most important is that we are able to work with partners across different categories and offer them. This basket of opportunities for their customers to purchase purchasing you'll have larger ticket and give them the opportunity to do it in a variety of ways private label co brand.
By now pay later and installment loan would just filling our our product suite very nicely.
Okay. Thanks.
Your next question comes from Vincent Caintic. Please go ahead.
Good morning, Ben.
Hey, good morning, Thank you and.
Just a quick follow up questions and sorry, I might have missed some of this but so I appreciate the commentary on just the current quarter receivables, maybe still shrinking going at the 2021.
But just want to know that seems like it's been picking up nicely and then.
The yields as well that picked up nicely quarter over quarter, and just kind of wondering what you're expecting for.
Trends there and when you made the comments on receivables does that include.
The bread acquisition or is that just speaking basis concur.
So let me I'll start with the deals and then I'll go to they are busy so the body heals the no well, obviously down year over year about 220 basis points look 150 basis points and for the fed action. So unless the fed obviously increases the discount rate therefore flows into the prime rate that we all have.
That pressure.
The rest of that pressure is coming from the customer lead programs.
And the actually the consumer behavior, they're paying us so the benefits were seeing the charge off the delinquencies in August the downside of that as some of the Lake you about so we may be able to pick up some of that overtime, but I think they were 150 basis points is it pretty quickly once we have something like that.
As far as they are.
Typically you know, it's going to be depended other consumer coming back into the retailers. Obviously have some really positive news for the folks coming back and as Ralph highlighted on his slides.
Well, we think that maybe a little bit of pressure certainly nothing like 2020 and thats prior to the bread acquisition will take about like the accretive to that.
Okay, Great that's really helpful and then I'm.
Im going after they migrate question.
So on.
I'm just wondering how much overlap there is on your existing retailer footprints between bread and.
And alliance data because it seems like maybe.
Maybe there shouldn't be just because of the product sets are pretty different than so I'm kind of thinking maybe there is a great cross sell opportunity between the two different products, but just wonder your comments on the existing overlap.
Yeah, I would agree with that I would agree with you there's minimal overlap and it just presents us with a really strong cross sell opportunity.
I would agree with what you said.
Okay, Great. That's all I had thanks very much.
Thank you.
At this time I will turn the call over to Mr. Nandra.
Thank you for joining our call today and for your interest in Alliance data.
We're excited about the future and are focused on the execution of our strategic our strategic priorities to drive our company forward.
Everybody have a terrific day. Thank you.
This concludes today's conference call you may now disconnect.
Thanks.
[music].
Oh.