Loyalty Ventures Inc. Reports Fourth Quarter and Full Year 2021 Results

Feb 03, 2022
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  • Fourth Quarter 2021 Operating Performance Reflected Resilience of Business Model
  • Priority Investments Underway in Digital Innovations, Content Personalization and Program Value
  • Full Year 2022 Guidance for Higher Revenue and Strategic Investments to Drive Sustainable Long-Term Growth
     

Summary of Financial Results
(in millions, except per share data)

  Fourth Quarter 2021   Full Year 2021
Revenue $238.6     $735.3  
Net (Loss) Income* ($55.8 )   $1.7  
Diluted EPS* ($2.27 )   $0.07  
Adjusted EBITDA** $47.4     $166.0  

* Net (Loss) Income and Diluted EPS include $64 million, or $2.62 per share of goodwill impairment and strategic transaction costs, respectively.
** See “Reconciliation of Non-GAAP Financial Measures” and “Financial Measures” below for a discussion of non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin and free cash flow.

DALLAS, Feb. 03, 2022 (GLOBE NEWSWIRE) -- Loyalty Ventures Inc. (Nasdaq: LYLT), a leading provider of tech-enabled, data-driven consumer loyalty solutions today announced financial results for the fourth quarter and full year ended December 31, 2021.

Commenting on the results, Charles Horn, Chief Executive Officer said, “Fourth quarter operating performance demonstrated the resilience of our business model in the face of continued COVID-related headwinds. Both the AIR MILES® Reward Program and BrandLoyalty posted double-digit adjusted EBITDA growth on lower-than-anticipated revenues due to improved margins and lower overhead costs for the quarter, exclusive of strategic transaction costs and a goodwill impairment. In the AIR MILES Reward Program, redemptions in the fourth quarter were up year-over-year but were constrained by the Omicron variant whose impact emerged midway through the quarter. Similarly, activity at BrandLoyalty increased from fourth quarter 2020 levels, but fell off in the latter part of the quarter due to pandemic-related supply chain and lockdown disruptions. Within this dynamic business environment, which defined much of 2021, we maintained a stable adjusted EBITDA margin of 22.6% and generated net cash from operating activities of $180 million that produced free cash flow of $161 million for the year. As a strong cash flow generator, we have the financial flexibility to invest in our business while deleveraging.

“As a result of the ongoing impact of the COVID-19 pandemic, we determined that it was more likely than not that the fair value of the BrandLoyalty reporting unit was below its carrying value, and performed an interim impairment test in connection with the preparation of our annual financial statements. Based on the preliminary results, we recognized a non-cash, goodwill impairment charge of $50 million.

“As a newly independent company following the separation from our former parent on November 5, 2021, Loyalty Ventures exited 2021 with two market-leading businesses, each with significant growth potential that we plan to develop through a combination of organic investments and tuck-in acquisitions. We will deploy our resources in 2022 to expand our analytics, accelerate digital platform upgrades, enhance rewards in our AIR MILES Reward Program and broaden our sourcing options and product portfolio at BrandLoyalty—all efforts designed to strengthen our value proposition for sponsors, clients, and loyalty program participants and build on our capabilities to support future growth.

“I want to recognize the hard work and dedication of the teams at both the AIR MILES Reward Program and BrandLoyalty, who have navigated challenging business conditions over the last two years, while managing relationships with our sponsors, collectors, consumers, clients, and partners. Their efforts, together with those of our corporate leadership and staff, have been critical to our ability to establish Loyalty Ventures as an independent, publicly-traded company, ready to pursue the substantial long-term growth opportunities on the horizon.”

Fourth Quarter and Full Year 2021 Consolidated and Combined Financial Results

Total revenue for the fourth quarter was $239 million, above the $231 million recorded in the fourth quarter of 2020. Adjusted EBITDA increased from $41 million in the fourth quarter of 2020 to $47 million in the fourth quarter of 2021. The net loss of $56 million, or $2.27 per diluted share includes $64 million of goodwill impairment and strategic transaction costs, net of tax, related to the separation.

For full year 2021, total revenue was $735 million compared to $765 million in 2020. Adjusted EBITDA was $166 million compared to adjusted EBITDA of $173 million for 2020. Net income for 2021 was $2 million, or $0.07 per diluted share inclusive of the costs associated with the goodwill impairment and the separation.

Fourth Quarter Segment Financial Results

AIR MILES Reward Program: Revenue increased 1% to $71 million, compared to $70 million in the fourth quarter of 2020, primarily due to a favorable exchange rate and an increase in revenues related to marketing services, offset in part by lower brand revenues stemming from a 7% decline in AIR MILES reward miles issued. Adjusted EBITDA increased 13% to $34 million, compared to the fourth quarter of 2020, mostly due to operating expense savings, exclusive of strategic transaction costs.

The decline in AIR MILES reward miles issuance relates to the non-renewal of two sponsors and their exit from the program in the first quarter of 2021. AIR MILES reward miles redeemed increased 28% compared to the fourth quarter of 2020, reflecting continued strength in the merchandise category and positive momentum early in the quarter for travel bookings, before the emergence of the Omicron variant in November 2021. On a sequential basis, AIR MILES reward miles issued and redeemed improved 9% and 20%, respectively, reflecting the impact of the holiday shopping season in the fourth quarter of 2021.

BrandLoyalty: Revenue increased 4% to $168 million, compared to $161 million in the fourth quarter of 2020, as a result of positive campaign performance in key European and Asian markets. Adjusted EBITDA increased 18% to $17 million, compared to the fourth quarter of 2020, reflecting the impact of the higher revenues and improved margin for certain programs as well as overhead savings, exclusive of strategic transaction costs and the goodwill impairment.

Recent Developments

  • After market close on November 5, 2021, Loyalty Ventures completed its separation from its former parent company and began regular-way trading on the Nasdaq Global Select Market on November 8, 2021. The separation was achieved through the distribution by the former parent of 81% of our outstanding shares to holders of the former parent’s common stock on the record date of October 27, 2021, at a ratio of one share of Loyalty Ventures common stock for every two and one-half shares of the former parent’s common stock.
  • The launch of a new AIR MILES Reward Program Flight platform in November provides collectors with a significantly improved booking experience and additional payment options, together with program enhancements.
  • BrandLoyalty continued its exclusive partnership with The Walt Disney Company in key regions, making it the only company in its industry partnering with Disney to offer campaigns featuring Disney-branded products.

Outlook

“Loyalty Ventures enters 2022 with a commitment to build upon the leadership positions of our AIR MILES Reward Program and BrandLoyalty segments to ensure long-term sustainable growth in the periods ahead. Underpinning our full year 2022 guidance for revenues of $775 million to $800 million are expectations for a significant pick-up in BrandLoyalty campaign-based programs which is expected to offset lower net revenues at the AIR MILES Reward Program due to higher redemption costs related to program enhancements. Adjusted EBITDA is expected to range from $150 million to $158 million, equivalent to a margin of approximately 20% at the midpoint, inclusive of additional operating expenses associated with priority spending initiatives to drive accelerated growth in 2023. We expect AIR MILES to produce relatively stable results throughout the year, with BrandLoyalty posting its strongest results in the second and fourth quarters of 2022.

“Our business is dedicated to deepening the connections between our clients and their customers, and we are confident that Loyalty Ventures is positioned to grow and prosper. Our established businesses have significant runway to expand beyond their current size, robust data platforms, a roster of marquee clients to which we can offer a broadened array of services, a solid financial position, and most importantly, a seasoned and motivated team around the world that is committed to value creation for all of our stakeholders,” Mr. Horn concluded.

Fourth Quarter and Full Year 2021 Conference Call and Webcast Information

Loyalty Ventures Inc. will hold a conference call to discuss its results and business outlook at 4 p.m. CT on Thursday, February 3, 2022. The live webcast of the conference call can be accessed here. The webcast replay will be available on the Company’s investor relations website for up to one year.

About Loyalty Ventures Inc.
Loyalty Ventures Inc. (Nasdaq: LYLT), an S&P SmallCap 600 company, is a leading provider of tech-enabled, data-driven consumer loyalty solutions. Our solutions are focused on helping partners achieve their strategic and financial objectives, from increased consumer basket size, shopper traffic and frequency and digital reach to enhanced program reporting and analytics.

We help financial services providers, retailers and other consumer-facing businesses create and increase customer loyalty across multiple touch points from traditional to digital to mobile and emerging technologies. We own and operate the AIR MILES® Reward Program, Canada’s most recognized loyalty program, and BrandLoyalty, a leading global provider of campaign-based loyalty solutions for grocers and other high-frequency retailers.

The AIR MILES Reward Program is Canada’s most recognized loyalty program with approximately two-thirds of all Canadian households participating. AIR MILES collectors earn AIR MILES at more than 300 leading Canadian, global and online brands and at thousands of retail and service locations across the country. This activity powers an unmatched data asset which along with world-class analytics and marketing capabilities, enables clients to accelerate their marketing activities and ROI. It is the only loyalty program of its kind to give collectors the flexibility and choice to use AIR MILES on aspirational rewards such as merchandise, travel, events or attractions or, instantly, in-store or online, through AIR MILES Cash at participating Partner locations. For more information, visit: airmiles.ca. To celebrate collectors and the issuance of its 100 Billionth Mile, AIR MILES is inviting Canadians to visit the Program on Facebook, Instagram and Twitter.

BrandLoyalty is a leading global provider of campaign-based loyalty solutions for grocers and other high-frequency retailers. BrandLoyalty changes shopper behavior on a mass scale – both emotionally and transactionally – through its innovative and digitally-enhanced loyalty solutions. With over 25 years of loyalty experience, BrandLoyalty fully supports the retailer’s journey, from strategy to solution and execution. After defining the retailer’s objectives and campaign KPIs, BrandLoyalty designs the ideal solution, including the mechanic, reward and campaign. Inspired by its purpose ‘Next generation happiness,’ BrandLoyalty’s goal is to maximize the impact for its clients and minimize the impact on our planet—making people happy and business better.

Find out more via brandloyalty.com or on LinkedIn and YouTube.

More information about Loyalty Ventures can be found at loyaltyventures.com.

Caution Regarding Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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, including revenues, adjusted EBITDA and adjusted EBITDA margins for 2022 and the assumptions related thereto; the preliminary results of our interim impairment test and the related goodwill impairment charge; our significant growth potential, including through organic investments and/or tuck-in acquisitions; our plans to deploy resources in 2022; our ability to grow our business; and the impact of future economic conditions, including, but not limited to, fluctuation in currency exchange rates, market conditions and COVID-19 impacts related to reduction in demand from clients, supply chain disruption with respect to our rewards, disruptions in the airline or travel industries and labor shortages due to quarantine.

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 release, 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, that actual results may differ materially from the preliminary results of our interim impairment test upon the completion of our procedures with respect to our annual financial statements and filing of our annual report on Form 10-K and the factors set forth in the Risk Factors section of both (1) our Registration Statement on Form 10-12B; and (2) any updates in Item 1A, or elsewhere, in our Quarterly Reports on Form 10-Q filed for periods subsequent to such Registration Statement or our Form 10-K for the most recently ended fiscal year when filed or any updates thereto. 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.

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, adjusted EBITDA, adjusted EBITDA margin, and free cash flow. 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, liquidity and overall results of operations. The Company uses adjusted EBITDA 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, goodwill impairment, strategic transaction costs, including costs related to the separation, and restructuring and other charges. Adjusted EBITDA margin represents adjusted EBITDA divided by revenue. Free cash flow represents cash flow from operations less capital expenditures. Free cash flow is a liquidity measure used by management to evaluate the amount of cash available for debt repayment, acquisition opportunities, and other corporate purposes.

Reconciliation of Non-GAAP Financial Measures
Reconciliations to the most directly comparable GAAP financial measures are available in the accompanying schedules, which are posted as part of this earnings release in both the Press Releases and Investor Relations sections on the Company’s website (www.loyaltyventures.com). No reconciliation is provided with respect to forward looking annual guidance as we cannot reliably predict all necessary components or their impact to reconcile these non-GAAP measures without unreasonable effort. The events necessitating a non-GAAP adjustment are inherently unpredictable and may have a material impact on the Company’s future results.

The financial measures presented are consistent with the Company’s historical financial reporting practices. The non-GAAP financial measures presented herein may not be comparable to similarly titled measures presented by other companies and are not identical to corresponding measures used in other various agreements or public filings.

Investor Contact:
Lynn Morgen
ADVISIRY PARTNERS 
lynn.morgen@advisiry.com
+1.212.750.5800


LOYALTY VENTURES INC.
CONSOLIDATED AND COMBINED STATEMENTS OF INCOME
(Unaudited)

                         
    Three Months Ended   Year Ended
    December 31,    December 31, 
    2021   2020   2021   2020
  (in thousands, except per share amounts)
Revenues                        
Redemption, net   $ 163,551     $ 154,447     $ 444,395     $ 473,067  
Services     69,829       70,194       269,073       264,050  
Other     5,211       6,233       21,839       27,689  
Total revenue     238,591       230,874       735,307       764,806  
Operating expenses                        
Cost of operations (exclusive of depreciation and amortization disclosed separately below)     200,426       188,096       573,246       587,615  
General and administrative     8,403       3,522       20,011       14,315  
Depreciation and other amortization     8,707       8,299       34,944       28,988  
Amortization of purchased intangibles     424       12,785       1,740       48,953  
Goodwill impairment     50,000             50,000        
Total operating expenses     267,960       212,702       679,941       679,871  
Operating (loss) income     (29,369 )     18,172       55,366       84,935  
Gain on sale of a business                       (10,876 )
Interest expense (income), net     5,852       (318 )     5,534       (834 )
(Loss) income before income taxes and loss (income) from investment in unconsolidated subsidiaries     (35,221 )     18,490       49,832       96,645  
Provision for income taxes     20,559       3,941       52,175       21,324  
Loss (income) from investment in unconsolidated subsidiaries – related party, net of tax           40       (4,067 )     246  
Net (loss) income   $ (55,780 )   $ 14,509     $ 1,724     $ 75,075  
                         
Net (loss) income per share:                        
Basic   $ (2.27 )   $ 0.59     $ 0.07     $ 3.05  
Diluted   $ (2.27 )   $ 0.59     $ 0.07     $ 3.05  
                         
Weighted average shares:                        
Basic     24,585       24,585       24,585       24,585  
Diluted     24,591       24,585       24,591       24,585  


LOYALTY VENTURES INC.
CONSOLIDATED AND COMBINED BALANCE SHEETS
(Unaudited)

               
    December 31, 
    2021   2020
    (in thousands, except per share amounts)
ASSETS              
Cash and cash equivalents   $ 167,601     $ 278,841  
Accounts receivable, net     288,251       270,559  
Inventories, net     188,577       164,306  
Redemption settlement assets, restricted     735,131       693,461  
Other current assets     28,627       23,000  
Total current assets     1,408,187       1,430,167  
Property and equipment, net     79,959       97,916  
Right of use assets - operating     99,515       113,870  
Deferred tax asset, net     58,128       70,137  
Intangible assets, net     3,095       5,097  
Goodwill     649,958       735,898  
Investment in unconsolidated subsidiary – related party           854  
Other non-current assets     24,885       4,125  
Total assets   $ 2,323,727     $ 2,458,064  
LIABILITIES AND EQUITY              
Accounts payable   $ 103,482     $ 74,818  
Accrued expenses     144,997       67,056  
Deferred revenue     924,789       898,475  
Current operating lease liabilities     10,055       9,942  
Current debt     50,625        
Other current liabilities     118,444       64,990  
Total current liabilities     1,352,392       1,115,281  
Deferred revenue     97,167       105,544  
Long-term operating lease liabilities     103,242       117,648  
Long-term debt     603,488        
Other liabilities     20,874       25,290  
Total liabilities     2,177,163       1,363,763  
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 24,585 shares at December 31, 2021     246        
Additional paid-in-capital     266,775        
Accumulated deficit     (55,383 )      
Parent’s net investment           1,093,920  
Accumulated other comprehensive (loss) income     (65,074 )     381  
Total equity     146,564       1,094,301  
Total liabilities and equity   $ 2,323,727     $ 2,458,064  


LOYALTY VENTURES INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)

             
      Years Ended December 31, 
    2021   2020
    (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income   $ 1,724     $ 75,075  
Adjustments to reconcile net income to net cash provided by operating activities:            
Depreciation and amortization     36,684       77,941  
Deferred income tax expense (benefit)     8,763       (3,502 )
Non-cash stock compensation     6,259       7,017  
Loss from investments in unconsolidated subsidiaries – related party     60       246  
Gain on sale of investment in unconsolidated subsidiary – related party     (4,110 )      
Gain on sale of a business           (10,876 )
Goodwill impairment     50,000        
Change in other operating assets and liabilities, net of sale of business     61,753       76,881  
Other     18,443       (6,465 )
Net cash provided by operating activities     179,576       216,317  
             
CASH FLOWS FROM INVESTING ACTIVITIES:            
Change in redemption settlement assets, restricted     (51,924 )     (40,677 )
Capital expenditures     (18,213 )     (24,319 )
Proceeds from the sale of investment in unconsolidated subsidiary – related party     4,055        
Investments in unconsolidated subsidiaries – related party           (736 )
Distributions from investment in unconsolidated subsidiary – related party     795        
Net cash used in investing activities     (65,287 )     (65,732 )
             
CASH FLOWS FROM FINANCING ACTIVITIES:            
Borrowings under debt agreements     675,000        
Payment of deferred financing costs     (22,852 )      
Contribution from Parent     5,637        
Consideration paid to Parent in connection with Separation     (750,000 )      
Dividends paid to Parent     (120,000 )      
Net transfers to Parent     (3,972 )     (2,638 )
Net cash used in financing activities     (216,187 )     (2,638 )
             
Effect of exchange rate changes on cash, cash equivalents and restricted cash     (3,025 )     14,446  
             
Change in cash, cash equivalents and restricted cash     (104,923 )     162,393  
Cash, cash equivalents and restricted cash at beginning of year     337,525       175,132  
Cash, cash equivalents and restricted cash at end of year   $ 232,602     $ 337,525  


LOYALTY VENTURES INC.
SUMMARY OF FINANCIAL HIGHLIGHTS
(Unaudited)

                                     
    Three Months Ended December 31,      Year Ended December 31,   
    2021   2020   % Change     2021   2020   % Change  
    (in thousands, except percentages)  
Segment Revenue:                                    
AIR MILES Reward Program   $ 70,621     $ 69,770     1   %   $ 284,744     $ 277,121     3   %
BrandLoyalty     168,016       161,104     4         450,609       487,685     (8 )  
Corporate/Other                                    
Eliminations     (46 )         nm*         (46 )         nm*    
Total   $ 238,591     $ 230,874     3   %   $ 735,307     $ 764,806     (4 ) %
                                     
Segment Adjusted EBITDA:                                    
AIR MILES Reward Program   $ 34,113     $ 30,079     13   %   $ 147,798     $ 144,025     3   %
BrandLoyalty     16,892       14,263     18         32,112       42,161     (24 )  
Corporate/Other     (3,624 )     (3,193 )   13         (13,919 )     (12,796 )   9    
Total   $ 47,381     $ 41,149     15   %   $ 165,991     $ 173,390     (4 ) %
                                     
Key Performance Indicators (in millions):                                    
AIR MILES reward miles issued     1,264.2       1,355.2     (7 ) %     4,670.2       4,963.8     (6 ) %
AIR MILES reward miles redeemed     1,071.8       838.4     28   %     3,507.3       3,127.8     12   %

* not meaningful


LOYALTY VENTURES INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)

                         
    Three Months Ended   Year Ended
    December 31,    December 31, 
    2021   2020   2021   2020
  (in thousands)
Adjusted EBITDA:                        
Net (loss) income   $ (55,780 )   $ 14,509     $ 1,724     $ 75,075  
Loss (income) from investment in unconsolidated subsidiaries – related party, net of tax           40       (4,067 )     246  
Provision for income taxes     20,559       3,941       52,175       21,324  
Interest expense (income), net     5,852       (318 )     5,534       (834 )
Depreciation and other amortization     8,707       8,299       34,944       28,988  
Amortization of purchased intangibles     424       12,785       1,740       48,953  
Stock compensation expense     (63 )     1,833       6,259       7,017  
Gain on sale of a business, net of strategic transaction costs (1)           (25 )           (7,816 )
Goodwill impairment     50,000             50,000        
Strategic transaction costs (2)     17,682       100       17,682       329  
Restructuring and other charges           (15 )           108  
Adjusted EBITDA   $ 47,381     $ 41,149     $ 165,991     $ 173,390  

 

(1) Represents gain on sale of Precima in January 2020, net of strategic transaction costs. Precima was included in our AIR MILES Reward Program segment.
(2) Represents costs associated with strategic initiatives, including costs associated with the separation, which were comprised of consent fees, amounts associated with the employee and tax matters agreements and professional services.

 

    Year Ended
    December 31, 
    2021   2020
      (in thousands)
Free cash flow:            
Net cash provided by operating activities   $ 179,576     $ 216,317  
Capital expenditures     (18,213 )     (24,319 )
Free cash flow   $ 161,363     $ 191,998