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2014 Annual Report Letter to Stockholders | 10-K $ 2014 ANNUAL REPORT LETTER TO STOCKHOLDERS | 10-K $ ADJUSTED EBITDA,NET $ 14% INCRRREAEAEASEE 5.3B REVENUE $122 23% INCREASE CORE EARNINGS PER SHARE 26%266% INCREASEE 15,0005 + EMPLOYEES 25% INCREASESE DEAR STOCKHOLDERS: LOOKING BACK 2014 was, first and foremost, a year about LoyaltyOne®, which operates the AIR MILES® growth. We added $1 billion to revenue, Reward Program in Canada and BrandLoyalty, representing a 23% increase over last year. had an overall solid year. Revenue was up 9% Most notably, our organic growth was about and adjusted EBITDA up 10% on a constant 11%, or 4 times 2014 U.S. GDP growth, and currency basis and including the pro forma above our long-term target of 3 times U.S. 2013 results for BrandLoyalty. On a reported GDP. In addition, we augmented our growth by basis, revenue and adjusted EBITDA were expanding our international footprint with the up 53% and 36%, respectively. BrandLoyalty addition of a majority interest in Netherlands- exceeded expectations, growing its revenue based BrandLoyalty, and our digital product and adjusted EBITDA at the fastest clip of any offering with the addition of Conversant. This of our businesses during the year. Notably, balanced growth was not at the expense of BrandLoyalty’s new client partnerships profitability, however, as we increased core further strengthened its position as the loyalty EPS by 26%1. powerhouse in Europe, while also expanding During the year, high-performing teams across into the key markets of Russia and China. all our businesses were laser-focused on Our Canadian AIR MILES Reward Program, leveraging rich data into measurable results however, came in lower than anticipated with for our clients through loyalty platforms suited its key metric, AIR MILES reward miles issued, for a broad spectrum of vertical markets. growing only 1%. Our focus in 2015 will be to As evidenced by our client signings and return that metric to our long-term goal of 4-5% financial performance, our business model growth. In Brazil, the dotz coalition — of which and investment thesis continued to be among we own approximately 37% — increased its the most exciting and compelling in the collector base to 14 million, up more than 30% delivery of data-driven, highly targeted loyalty from the prior year and ahead of expectations. marketing solutions. Epsilon® had a mixed year, with revenues up 10%, driven by solid organic growth of 7%. HOW WE DID IT The new Agility Harmony® platform is a hit with • We completed our largest acquisition, clients — volumes are high and continuing to Conversant, which provides us with scale grow. In addition, the Conversant acquisition in the key digital markets of display, mobile gives us significant scale in areas we needed, and video. including targeted display, mobile, social and video. The competition for talent in this • We focused on expanding our global segment is fierce, and as such we incurred footprint in existing and new geographies, greater than expected costs as we added and driving collaboration between staff to accommodate growth. This resulted in international loyalty platforms. virtually no flow-through of revenue growth to • We prudently invested in people, EBITDA growth — clearly, a disappointment. enabling us to support our growing book We have plans to expand our off-shoring of new business and the critical client initiatives modestly in 2015 to moderate the needs that come with our high-touch, client- growth rate in human capital costs and ensure centric approach. revenue growth flows to EBITDA growth. 1 See Appendix A for a discussion and reconciliation of non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA, net, core earnings and core earnings per diluted share. Card Services (previously named Private Label improved issuance growth in the mid-single toward the very specific, data-driven, targeted Services and Credit) had another tremendous digit range, while the success of BrandLoyalty marketing that we specialize in — and we have year, with revenues and adjusted EBITDA, net is expected to continue. Of key interest is the the results to back it up. up 18% and 16%, respectively, and signing expansion of its footprint into Canada. Finally, We have a competitive advantage baked a record number of new clients. Our active we’ll be looking for our dotz coalition in Brazil into this shift: We manage billions of digital cardholder base grew 10% to approximately to grow approximately 30% in 2015. interactions on a daily basis across desktop, 35 million. One in five women in the U.S. Epsilon has now added a powerful competitive mobile, social and video channels. With our now carries one of our cards. The increasing advantage in Conversant, which will help unique and trusted view into our clients’ number of new client signings and portfolio Alliance Data leap-frog its capabilities in the transactional data, we’re extremely well growth brings nice visibility as those vintages digital space, especially in the targeted display positioned to identify the right consumers are expected to each ramp up to about $2 billion category that plays across consumer screens. online and offline, reach them at scale, and in portfolio growth over a three-year period. Conversant provides scale in the rapidly personalize messages that drive sustainable In order to support new business, we added growing display, mobile, video and social digital ROI. Regardless of the vertical, we have about 1,000 associates, primarily in our care channels. A key initiative will be to introduce a platform — coalition loyalty in the AIR centers, and operating efficiencies paid off Conversant’s suite of digital products to other MILES Reward Program, short-term loyalty in the back half of the year, with revenue select Alliance Data clients, while also linking in BrandLoyalty, long-term loyalty in Epsilon, growth outpacing expense growth. In terms Epsilon’s Agility Harmony capabilities with or loyalty with a credit component in Card of organic growth, we continue to see credit Conversant’s capabilities to benefit existing Services. While our businesses may cycle sales growth as high as 3 times that of our clients. Additionally, driving revenue growth differently, all are growing, and together, brand partners’ total sales growth, the result to the bottom line is critical. they deliver a consistent and positive flow of leveraging rich data for deep insights across to earnings. multiple delivery channels. Digital credit sales We expect another record year for Card as a percentage of total credit sales increased Services. We anticipate the largest annual I’d like to close by recognizing the 15,000 to 25% in 2014. increase ever — up to 30% — in portfolio talented, dedicated associates who give their growth due to both higher card use within our best every day for our company and our At the corporate level, liquidity was a comfortable core clients, and the ramping-up of the record valued clients. They are the heart of Alliance $1.8 billion at year-end. When market opportunities number of new clients signed. While we don’t Data and why our responsible business arose, we opportunistically followed-through believe the swipe is broken, we will participate practices and passion for delivering powerful on our share repurchase program. More than in new digital payment models. Our proprietary results for our business, our communities and $2.5 billion of our stock has been repurchased mobile virtual card will continue to be a strong our stockholders allow us to be among an elite since 2008. We are well positioned as we push, enabling us to collect first-party enhanced group of high-performing companies. Earning strategically pursue current opportunities to transactional data while meeting the needs of the trust and confidence of our stockholders invest in our business and also anticipate future customers who want to access their card and remains a top priority and I thank you for your needs as they arise. its benefits via their smartphone. continued support. We had a great 2014 — LOOKING AHEAD we’re ready to tackle 2015. IN CLOSING 2015 will be a year of focusing on execution and Alliance Data has demonstrated a consistent delivering on our promises across all businesses. track record as a growth company that We’ll be looking to maintain balance and delivers strong results to the bottom line. As consistency, and to deliver growth in revenue our business continues to grow internationally, that flows through to the bottom line. we’re facing some headwinds in terms of LoyaltyOne will, first and foremost, work toward currency exchange, but we’re riding far Edward J. Heffernan returning the AIR MILES Reward Program to stronger tailwinds in the increasing shift President and Chief Executive Officer UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) H ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 or © TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-15749 ALLIANCE DATA SYSTEMS CORPORATION (Exact name of registrant as specified in its charter) Delaware 31-1429215 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 7500 Dallas Parkway, Suite 700 Plano, Texas 75024 (Address of principal executive offices) (Zip Code) (214) 494-3000 (Registrant’s telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par value $0.01 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None (Title of class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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