Bread Financial - Earnings Call - Q2 2021
July 29, 2021
Transcript
Speaker 0
Good morning, and welcome to Alliance Data Second Quarter twenty twenty one Earnings Conference Call. At this time, all parties have been placed on a listen only mode. Following today's presentation, the floor will be opened for your questions. It is now my pleasure to introduce Mr. Brian Verap, Head of Investor Relations at Alliance Data.
Sir, the floor is yours.
Speaker 1
Thank you. Copies of the slides we will be reviewing in the earnings release can be found on the Investor Relations section of our website. On the call today, have Ralph Andretta, President and Chief Executive Officer of Alliance Data and Perry Diebermann, Executive Vice President and Chief Financial Officer of Alliance Data. 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 SEC.
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 alliancedata.com. With that, I would like to turn the call over to Ralph Andretta. Ralph?
Speaker 2
Thank you, Brian, and thank you to everyone for joining the call this morning. I'm excited to have our new CFO, Perry Bieberman joining me today. He has been on the job for less than three weeks, but he's jumped right in and we're happy to have him on the team. I'll start at Slide three with the takeaways from the second quarter. We continue to make considerable progress on our strategic initiatives.
During the quarter, we hosted an investor event where we discussed our three year strategic plan, highlighted our enhanced product offerings, reviewed our lending philosophy and released our long term financial targets across key metrics. We also announced the expected spin off of our LoyaltyOne segment, which is key to our strategic transformation to strengthen our balance sheet metrics and deliver long term focused sustainable growth. We've successfully implemented several modernization and efficiency initiatives that I will discuss later. At the end of the quarter, we launched our brand Fiserv relationship and continue to sign new partners and build our prospect pipeline along with renewing several of our valued brand partners. We are pleased to see credit sales rebound to pre pandemic levels as we exit the second quarter.
Consumer confidence and mobility continue to improve as retailers focus on engaging their customers through an omnichannel shopping experience with our Gen Z and millennial sales up double digits compared to pre COVID levels. Digital sales were up $400,000,000 versus the first quarter as total overall sales continue to grow. Finally, our credit performance remains strong as a result of our disciplined risk management and the ongoing impact of the economic stimulus payments and programs. We anticipate the credit metrics, including our delinquency rate, will normalize once government stimulus programs expire in the latter part of the year. Slide four highlights the key financial metrics for the second quarter.
Total revenue for the quarter was $1,000,000,000 and net income was $273,000,000 Revenue increased 3% year over year, while total expenses excluding provision for loan loss declined 4%. The quarter included a net reserve release of $2.00 $8,000,000 resulting in reported diluted earnings per share of $5.47 for the second quarter. Credit sales were up compared to the first quarter credit sales were up 22% compared to the first quarter and up 54% year over year. Our net loss rate was 5.1 for the quarter, well below our historic average of 6%. Slide five provides a quick update on select initiatives from our ongoing strategic road map.
Our strategic lending distribution relationship with Fiserv provides a significant opportunity to scale the bread platform beyond the direct distribution model. The program went live June 30 and select merchants will launch in the second half of the year with a broader rollout planned for 2022. To continue to provide a more frictionless experience for our brand partners and their customers, we have accelerated the adoption of our enhanced digital suite and our unified software development kit. These applications provide for a seamless experience for brands to integrate and offer our full suite of offerings, including the Bred digital payment platform products. Technology advancements continue to be at the forefront of our strategic initiatives.
During the second quarter, we completed the transition of our statement processing to Fiserv and the transition of our core processing to Fiserv remains on track for mid-twenty twenty two. The transition of these processing functions reflects Alliance Data's continued focus on tech monetization, delivering enhanced payment and servicing capabilities and realizing additional efficiencies. The migration to Pfizer's industry leading processing platform will enable faster speed to market for new products, credit program launches and product portfolio conversions. The migration will also free up capital, reduce fixed costs and lower our cost to serve. Our proprietary card, which launched in 2020, exceeded 1,000,000 cardholders in the second quarter, which we view as a very important milestone.
We look forward to driving acquisition growth of our proprietary card through expanded targeted marketing programs in 2022. Finally, we remain focused on responsible balance sheet management. We recently completed a debt refinancing, which extended the maturity of nearly all of our term loan by eighteen months to July of twenty twenty four, and we received the necessary permissions required for the anticipated SpinCo debt refinancing activities. The LoyaltyOne spin off is on track for the fourth quarter of this year. These activities will help improve our capital metrics and provide additional flexibility for the company.
Slide six highlights select brand partner additions and renewals. We added several new partners during the second quarter, including new card partners, Route twenty one and GasBuddy. Brett's success in acquiring new online direct acquisition partners also continues. A select few of the new partners added to the platform are displayed on the right side of the slide, including a new opportunity with Wayfair to provide bread's digital payment platform offerings to their customer base. Also in the second quarter, we signed multiyear card renewals with several partners, including Ann Taylor and Signet.
We remain focused on growing profitably with collaborative brand partners and our enhanced product set. Turning to Slide seven, I'll provide more details on the progress in each of our bread business models. We just recently celebrated the six month mark of our acquisition of bread and we are excited about the progress we have made and for the opportunities ahead of us. Bread's direct acquisition pipeline remains strong. We continue to have positive dialogue with many card brand partners to enable Bread's digital offerings, and we are looking to align with their IT road maps and release timelines, which may take longer for larger merchants.
Once scheduled, RED's platform makes for a quick seamless integration. I would highlight the recent signing of our current card partner, Blue Nile, one of the largest online jewelers with over 1,700,000 customers now on Bred's payment platform. Moving to the distribution channel. As I mentioned, on June 30, we activated an e commerce pilot with Fiserv and anticipated a select few early launches of Fiserv merchants onto the bread platform during the second half of the year. We are excited about this opportunity and anticipate a full rollout in 2022.
Finally, our platform capabilities with RVC continue to improve as we have a quality pipeline of new partner additions expected to launch in the fourth quarter prior to the holiday season. Moving to Slide nine. In June, we released our 2020 Environmental, Social and Governance Performance Report. I am proud of the progress we've made over the past three years and we remain focused on the priorities that drive long term success for our business and our stakeholders alike. Among the many accomplishments, I would highlight the results of our multiyear Board refreshment program and our human capital management, including our strong commitment to diversity, equity and inclusion.
Alliance Data's ESG strategy will continue to be central to the company's ongoing transformation, which prioritizes delivering long term sustainable stakeholder value, modernizing technology, advancing an inclusive culture, and managing our commitment to ethical decision making. These priorities embedded in the company's cultural business practices and corporate governance ensure that we mitigate risk and remain competitive in the dynamic marketplace. Before I turn it over to Perry, I'd like to go back to Slide eight and review the performance of LoyaltyOne, which includes Air Miles reward program in Canada and The Netherlands based brand loyalty. As displayed in the graph on the right, AIR MILES reward miles issued and redeemed improved in the quarter as flight bookings increased in anticipation of reduced travel restrictions in the back half of the year. At the same time, merchandise redemptions remained strong.
Average daily flight bookings are currently 10 times higher than we experienced in the first quarter, yet remain at 60% to 70% of the pre pandemic level. So there is an expectation for further improvement as the recovery in Canada continues. BrandLoyalty's new program activities improving with a strong pipeline of clients in the second half of twenty twenty one. Of course, we continue to closely monitor the COVID conditions throughout the world, including the rise of the Delta variant and the potential impact on the macroeconomic environment and our businesses. My apologies for being out of order.
Now I'd like to turn it over to Perry Bieberman, our new CFO. Perry started with us on July 6, and I am really happy to turn over the CFO duties to him. As you likely saw, Perry has over thirty three years of experience in the card industry and bank and card and banking industry and is a very welcome addition to our team. With that, I'll turn it over to Perry.
Speaker 3
Thanks, Ralph. I'm happy to be here. Slide 10 provides our results for the second quarter of twenty twenty one compared to the second quarter of twenty twenty. Revenue was up 3% primarily due to the impact of the pandemic related consumer relief offered by Alliance Data in the second quarter of twenty twenty. Total expenses excluding provision for loan loss were down 4% compared to the second quarter of twenty twenty with operating expense efficiencies offsetting our strategic investment in BREND.
Pre provision pre tax earnings or PPNR were up 20% year over year aligned with our focus on driving core underlying earnings growth. Finally, net income included the benefit of the $2.00 $8,000,000 net reserve release in the quarter. I will provide more details on our results in the coming slides. Slide 11 provides our segment level results for the second quarter. LoyaltyOne revenue was essentially flat year over year, while Card Services revenue increased 4%.
LoyaltyOne EBT was slightly up due to the increase in travel bookings at AIR MILES, favorable currency exchange rates and lower amortization expense. The improvement in card services at EBT is primarily a result of the lower loan loss provision expense resulting from continued strong card member payment behavior and the improvement in the delinquency rate year over year. Moving to Slide 11, I will review some of the key business metrics for the company. Starting on the left of the slide, we show our average receivables and our total credit sales trends. For the quarter, we saw credit sales come in at $7,400,000,000 or up 54% year over year and up 22% sequentially.
As Ralph highlighted earlier, we continue to see a rebound in our credit sales performance as consumer confidence improves. As expected, given seasonal trends, combined with elevated payment rates driven by strong customer liquidity from government stimulus, average receivables were down slightly in the second quarter sequentially. Moving to the right, revenue yields declined slightly from the first quarter as payment rates remain elevated leading to lower delinquency rates and related late fees. Card services cost of funds continues to trend lower, down approximately 10 basis points from the first quarter as our consumer deposit portfolio rates continue to move lower. Turning to Slide 13, I'll start in the upper left.
Our delinquency rate dropped 50 basis points versus the previous quarter to 3.3%. On the upper right, you can see that we finished at a loss rate of 5.1%, down two fifty basis points versus last year. These low rates are the result of our disciplined risk management as well as the economic stimulus, which is driving higher consumer savings rates across and greater ability to pay. Turning to the bottom left of the page, our allowance decreased $2.00 $8,000,000 to $1,600,000,000 primarily driven by the improved delinquency rate and improving economic conditions for a reserve rate of 10.4%. Lastly, on the bottom right hand side of the page, our revolving credit risk distribution continues to trend slightly higher towards the greater than six sixty segment, accounting for 64% of our total portfolio in the second quarter.
I would note that we believe these numbers are slightly elevated in part due to the economic stimulus aiding consumer scores. Slide 14 provides our financial outlook for the year. Our full year receivables guidance remains down mid single digits year over year, while we now look for credit sales to be up double digits in 2021. While payment rates have slightly moderated from the peak in March, the elevated level continues to put pressure on receivables growth relative or related to credit sales growth. Our outlook for the full year revenue and total expenses remains unchanged.
Expenses will increase in the back half of twenty twenty one as we continue to make investments in digital, data and analytics, marketing and bread to fuel future growth. We also anticipate an increase in expenses related to our core processing transition to Fiserv as well as higher brand loyalty redemption expenses aligned with the increase in revenue expected in the second half of twenty twenty one. We
Speaker 2
have
Speaker 3
the ability to flex our investment dollars up or down as needed to align market conditions and our outlook. As both loss rate and delinquency rate remain low, we are adjusting our full year loss rate guidance to be in the low 5% range. We anticipate that credit metrics and payment rates will begin to normalize in the latter half of the year as stimulus programs wind down. We remain dedicated to simplifying and strengthening our business and investing in our strategic initiatives to continue to drive sustained profitable growth. We expect to resume high single to low double digit receivable growth in 2022.
Operator, we're now ready to open up the lines for questions.
Speaker 4
Good morning, Thank you. Morning. Good morning, Ralph, and welcome, Perry. Perry, question, I mean, this is a big change for you coming from where you were to Alliance Data Systems. What attracted you to ADS?
And what do you see? Where do you see the ability? And what can you add? What do you see that you can add to the outlook or the story or the strategy, if you would?
Speaker 3
Yeah. Thanks, Bob, for the question. Again, as I said, I'm really happy to be here. You know, I've been watching ADS for quite some time. When you've been in this industry for, as noted, thirty three years, it's a small community in the credit card and payment space.
And so when we heard of Ralph going over to ADS, obviously, that got some headlines. And then Val joining and a number of other industry vets coming over, it certainly piqued my interest. And then with the Brett acquisition, there's a lot of buzz going around that the company was certainly going through a transformation. And so to be part of this leadership team and work with this group is a terrific opportunity. And it takes me back to the early days in my career where we basically IPO the company and they grew at quite a nice rate.
But but everyone's focused on a a singular mission. I I can tell from being part of this group for only three weeks. This is an incredibly collaborative team, and I hope to bring that collaboration and bring my experience to them. And, you know, I was here a couple weeks ago in New York, and we had the opportunity with our leadership team and the board. And I was incredibly impressed with, the engagement, and the collaboration was incredibly evident.
And this group is agile, nimble, and we're going to drive towards the transformation efforts. I'm excited to be part of this group.
Speaker 2
You know, Bob, I would say Perry's first protocol finance, but aside from being a trusted financial advisor, he is a strategic decision maker with the company along with the rest of my leadership team. So we are very happy and lucky to have him here and I am very happy not to have to do the CFO job anymore.
Speaker 4
Great. I have a question on bread and just the momentum. I thought Wayfair was a really interesting addition. And I'm very curious on that because I know they were an affirm partner and they still still are. And Wayfair was an ABS private label customer that, you know, that's that's shifting off or if it has anything, it it may already have.
So how does you know, is that an exclusive relationship? And what does that and then just, you know, related to that, have you added it was Blue Nile. Was Blue Nile a private label customer? Is there a pipeline of ADS private label customers that are gonna become great customers?
Speaker 2
Yeah. Let let me, let me first start with, with Wayfair, and I am happy to be associated again with Wayfair. That you know, upon my arrival here, Wayfair was exiting the relationship with ADS, and, you know, I I I was disappointed about that because it's such an interesting and innovative brand. So for us to be back in a relationship with Wayfair, although not exclusive, I'm really happy to do that. We're gonna be really focused on making this relationship very profitable for them and equitable for us because I think it's great to be associated with such an innovative brand.
Hoping to welcome me back. I'm welcoming them back with open arms.
Speaker 5
In terms of Blue Nile,
Speaker 2
Blue Nile is a private label customer of ours, and we've sold into them. And it's 1,700,000 customers that in October will be on the bread platform and be able to provide them additional types of financing. So really excited about that with that partner. And there's more to come in the second half of the year. So there's a number of partners that we will sign and that will private label partners and our co brand partners that will be on the
Speaker 1
bread platform. It does take a little time as
Speaker 2
you can imagine, but we are we have a steady pipeline of our current brand partners. And if you think about bread, it's not a one trick pony. There's three elements to bread, right? You've got the direct you've got the direct acquisition and then the focus on Fiserv and really scaling up in 2022. We spent a lot of time the first six months getting that signed and focused on getting that done.
And then obviously, the RBC relationship and ensuring that we'll have partners on that in the fourth quarter. So I think we've made really nice progress on bread across all three, what I call all three, laser the stool.
Speaker 4
Thank you. Just if I can sneak in, just one last one. On page 13, the bottom right, the revolving credit risk distribution, big change from the second quarter of nineteen to the second quarter of twenty Is that the right mix or generally in the range of the mix that you would like to have long term? Yeah.
Speaker 2
It it it is. It's gonna fluctuate a little bit, but it is it is the right mix. You know, that's a mix. Two things to remember. One is product mix and risk and risk risk mix, and and that's how that's how you get there.
So it's a combination of both to you know, it'll it'll moderate back and forth, but that's about where we wanna be.
Speaker 4
Thank you. Appreciate it.
Speaker 0
Your next question comes from the line of Sanjay Sakhrani with KBW.
Speaker 6
Thanks. Good morning and congrats, Perry. I guess first question is on the yield. As we look at that gross revenue yield, it's I understand it's stabilized. Do you expect that to start picking up as loan growth materializes?
Maybe you could just speak to the directional trends in
Speaker 2
Yes. I think it's going be stable for the rest of the year, Sanjay, and for a couple of reasons. I think the second quarter is seasonal. So you have to factor a little seasonality in the second quarter. But because payment rates are elevated, that yield is going to be steady.
So I don't see it picking up quite a bit for the rest of the year. As payment rates moderate, you'll see that yield improve as we go into 2022.
Speaker 6
Am I correct, you guys think it will migrate back to the highs that we've seen in the past or some intermediate point?
Speaker 2
I think it will again, I think it will be in the intermediate point because of our product and risk mix. So the yield will improve, but our loss rate won't deteriorate as that yield improves. I think you'll see a nice balance between yield improvement and loss rate, which is exactly what we're looking for.
Speaker 6
Okay. Great. And then I guess follow-up question on the Fiserv onboarding. I think I heard you, Ralph, talk about that it's going to take the process merchants. I guess when we think about your targets out to like 2023, could you just speak to the cadence of the onboarding?
Like do you expect to be fully ramped by a certain point in time to hit those targets? Or how should we think about that?
Speaker 2
Yes. So here's how I think about it, Sanjay. We want to get it right, not trying to get it fast, right? Because this is a long term relationship, and we want to make sure that we're doing things correctly so that the ease of integration and ramp is simple. So we're learning from we went live June 30.
We're going to learn from the partners we bring on this year. And we're going to ramp our hope is to ramp quickly in 2022. And that will carry us into 2023. The Fiserv is a really nice part of our receivables growth. But if you think about it, it's just one part of our receivables growth.
Another part is a deeper penetration in our existing partners and our resigned with our new product set. That's part of our growth. The growth in co brands, again, is part of our growth. And then I expect with the team we've put together to get my fair share, probably more than my fair share of opportunities out there in the marketplace. So the combination of all those gives me certainly gives me confidence that we'll hit the twenty twenty three metrics.
Speaker 6
Great. And just one last one on for Perry. Just following up on Bob's comments, maybe you could just talk about your strategic priorities over the next year? Thanks.
Speaker 3
Well, my strategic priorities are the same as the leadership team's strategic priorities to make sure we execute spin, ramp up bread, deliver the efficiencies that we need to do to continue the investments in the company make sure that we have disciplined, let's say, financial management and that we support the business leaders with all the investment decisions we're trying to make. And as Ralph said, compete and win our fair share of new deals and make sure we have the proper economics for the renewals that we have.
Speaker 7
Great. Thank you.
Speaker 2
It's really good to be aligned with your CFO. I'm really happy about that.
Speaker 0
Your next question comes from the line of Mahir Bhatia with Bank of America.
Speaker 8
Hi. Thank you for taking my questions and congratulations, Barry. I wanted to maybe just ask about the receivables guidance. Just trying to understand, like,
Speaker 9
some of the dynamics going on there because, I mean, we've increased your credit sales guidance. Receivables, if you look at the monthly data start seem to have crossed in May, and then you have good momentum in terms of bread coming on this year. So with government programs expiring, I'm just trying to understand what what's keeping the receivable guidance down mid single digits? Are there incremental portfolio losses that maybe we should be thinking about or some other headwinds? Or is it still just all payment rates staying higher than you'd expect?
Speaker 2
I think payment rates is a spotlight. Right now, we're seeing that elevated payment rate. And we are our forecast is that will abate in the second half of the year. But we're still seeing it elevated. I think that for me is if I had to pick one reason, that's the reason.
We're seeing strong sales growth. That sales growth is still outpacing the payment rate moderation a bit, but it's still payment rates are still high.
Speaker 9
Okay. So there's nothing else? Like there's no portfolio loss
Speaker 2
or something that No.
We've already talked about we've already factored in that portfolio loss in the third quarter. That's impacting us, but really, it's payment rates.
Speaker 9
It's not
Speaker 2
that's not impacting our receivables.
Speaker 9
Got it. And then just one quick one for me. You mentioned acquisition of proprietary cardholders being an opportunity in 2022. Maybe talk a little bit more about that. Is it bread?
Is it something else?
Speaker 2
Yes. So in 2020, when we did lose the Wayfair partnership, the result of that is the successor, which was Citi, declined to buy the portfolio. We had this portfolio sitting out there. We had a couple of bankruptcies sitting out there. So quite frankly, we had never done this before through Val and I's suggestion and the team.
Why don't we put a proprietary card in the marketplace and not just let that receivable run off, but improve the receivable. So we're able to find good prospects in those files, in those portfolios, and we offer them a general purpose card with a good cashback program and some incentive. And they've been good card members. We've seen, quite frankly, millennials spending on that card more so than any other part of our population. So we think it's a real opportunity for us.
It started as a safe product, but we're going to go direct to market. And it just diversifies our portfolio and moves on and kind of moves our lessens our dependence on bricks and mortar and private label and partnerships. It's in the mix. It's one of several things we're offering now as part of our new product sets. We're excited about it.
We're getting better at it, a million customers, and I'm really proud of that crossing that million customer mark. Understood. Thank you.
Speaker 0
Your next question comes from the line of Jeff Adelson with Morgan Stanley.
Speaker 10
Good morning, Jeff. Hey, good morning, Ralph and welcome, Perry. Just wanted to, follow back up on on the Wayfair point in the loan growth. I I I agree that it was pretty interesting to see that you guys were able to to, kind of reenter with that company. Just wondering if there's anything in your strategy that, you know, you're doing to go after maybe some other, card portfolios that you lost in the past or or if you how you're viewing this as as perhaps a hook to win more of those relationships that you don't currently have on the card side today.
Speaker 2
Yes. Listen, we have a crack sales team and I've kind of unleashed them to go after good business and profitable business for us. So while I revisit where we've lost certain partners, I mean, I'm happy to sell buy now pay later installment loan to them, but their card relationships are long term. So when they're up again, we may decide to go after them. But in the sense that we could continue to work with them like we're working with Wayfair a on a different lending model, I'm very happy to do that.
So but, you know, it's it's it's it's not a that itself is not a, you know, a definitive strategy. The strategy is to go after and sign, you know, profitable partners for ADS and Brent.
Speaker 10
And then and just on the payment rates, are you seeing I know they're still elevated. I'm just wondering, are you seeing any signs that that's actually starting to maybe go down from here? And then when you think about the high single digit, low double growth for next year, just just kind of wondering how exactly you're thinking about the payment rates. Do they need to go back down to the pre pandemic level, or can they remain a bit elevated and and you still hit that
Speaker 2
Yeah. So, you know, we've you know, as of July as of July 29, you know, the payment rates are elevated. We obviously, we look at them every day. And, you know, and they're still elevated. But they don't have to go down to pre pandemic levels for us to get to that high single double low double digit growth in 2022 as we predicted because our sales growth is outpacing that moderation in payment rates.
They're still high, but our sales growth are double digit and we expect that to continue, albeit the delta variance out there. We're monitoring that and we're not turning a blind eye to what's in the marketplace. But as we see today, our sales are outpacing the moderation in the high payment rates a bit.
Speaker 10
And then just one last housekeeping for me on the $05,000,000,000 portfolio. I know that's coming out. Can you just remind us of the timing of of when that actually happens or when if it happened or not?
Speaker 2
That would be third quarter end of third quarter.
Speaker 10
End of third quarter? Okay. Thank you. That's all for me.
Speaker 0
Your next question comes from the line of John Pancar with Evercore ISI.
Speaker 5
Good morning. Good morning, John. On bread, can you perhaps help us out with the updated loan balance for Bred as of June 30? I believe it was around $130,000,000 as of the first quarter. And do you still expect a doubling in that loan balance by the year end 2021?
Speaker 2
Yes. We expect that loan balance will double as we exit 2021. I think the loan balance is in the 10 Q. You take a look at it there, but we expect we're on track to double that loan balance in 2021.
Speaker 5
And and related to that, do you still expect a GMV of about 10,000,000,000 by year end '23? And how should we think about the loan balance by year end '23 if that's achievable?
Speaker 2
Well, let me say we will approach $10,000,000,000 in 2023. And we're not the loan balance is going to be a combination of we're going to keep ABS within the Card Services division. So it's part of a greater loan balance. But we view it as being a big part of our loan balance going forward, particularly if we approach that $10,000,000,000 of GMV in 2023.
Speaker 5
Okay. And then lastly, on your receivables growth in 2022, the high single to low double digit, regarding the last answer to the last question on that, is it that the payment rates are coming in that much? I mean, sales volume is coming in that much better than expected that it's offsetting the payment rates remaining elevated for a longer period, and that's why you're still confident in that high single digit to low double digit expectation? Because I would have thought that you might have tempered that a little bit given the way payment rates have been trajecting for the industry.
Speaker 2
Yes. Well, I would say the sales are coming in better expected, and it's marginally set marginally offsetting those payment rates. They're still high, you know, it's still it's outpacing it a little bit, so it's marginally offsetting that to give us enough confidence knowing what what what's in our pipeline that 2022 high single, low double digit is achievable.
Speaker 8
Okay. Got it. Thank you for taking my questions.
Speaker 10
Thank you.
Speaker 0
Your next question comes from the line of Ming Zhao with Deutsche Bank.
Speaker 8
Good morning, Ming. Hi. Good morning. Good morning, guys. Thanks for taking my question.
I wanted to ask quickly on the in store versus digital sales. It looks like percentage of in store versus digital new account growth has sort of moderated to pre pandemic levels. I guess, is there an expectation for that to trend higher with Thread coming online? And as you mentioned, the focus on the Proprietary Card next year, just your general thoughts there?
Speaker 2
Yes. It certainly will. I think our digital sales will trend higher as we bring partners on to bread, as we enhance our digital suite, as we as more partners adapt that and we sell more of our products to partners, which are digital and omnichannel, I would expect that to increase at a good clip.
Speaker 8
Got you. Great. And then separately, I guess, you guys sort of disclose the exclusivity of partnerships coming online with RED?
Speaker 2
No. Look, here's what I will say. Some of those partnerships are exclusive, some of them are not. They're competitive. We're very happy to compete in the market So obviously, you want exclusive partnerships over the best kind, but clearly, it's not exclusive, we're very able to compete on price and product and quality.
Speaker 9
Got it.
Speaker 8
And then just last lastly for me. On the on the payment rates, is there an expectation that as government stimulus sort of ends in, you know, September slash, October that you're gonna start to see a more, you know, I guess, a gradual acceleration Just your expectations in terms of when the decline in payments happens in
Speaker 10
2019?
Speaker 2
Boy, wish I had my magic eight ball. But we think as the government stimulus rolls off, you'll see a moderation of payment rates in the fourth quarter. I don't think you're going to see payment rates go to our pre pandemic levels because we have changed our product mix and our score mix. That was intentional. So we'll see payment rates moderate because of the stimulus.
But I think they'll be elevated there won't be our traditional low
Speaker 9
payment rates we have pre pandemic because
Speaker 2
we have intentionally changed our product and score mix and risk mix as well. So they'll moderate but not in my view, not to where they used to be in 2019.
Speaker 8
Got it. Great. Thank you, guys.
Speaker 0
Your next question comes from the line of David Scharf with JMP Securities.
Speaker 6
Good morning, David. Hi, good morning. Welcome aboard, Perry, and thanks for taking my questions. Two things. First, Ralph, when I saw all the jewelry brands listed under the renewals, I guess the Cigna brands, you know, it kind of reminded me to maybe ask for an update on vertical concentration.
And in particular, I'm assuming that beauty health, you know, is still the fastest growing vertical or best performing. Can you provide an update on perhaps for Alta, Sephora and Sally's sort of where they fall in terms of, the maturities sort of renewal schedule and whether or not that vertical is it the growth expectations for that vertical are a key part of meeting receivables targets?
Speaker 2
Yes. So I'll speak to our portfolio in total. We have 160 brand partners and those renewals are staged over five to seven years and not one year of renewals really hurts us. If a new you know, a nonrenewal really impacts the p and l in a great way. We hate to lose partners, but, you know, we've structured in a way that, you know, it's it's over a period of time.
And we've been focused on early renewals with our partners. And we, you know, we we really are leading in the in the in the beauty space and it's been very, healthy. And, you know, we've worked closely with with the partners you have mentioned and we continue to work closely with them bringing new products to the market, making it easy for acquisition, giving them options on in terms of products and penetrating deeper into their loyalty base. So I think we'll continue to diversify. I think Pet is an interesting product line.
Beauty is an interesting product line. Jewelry, as you've kind of noted, plus sizes is an interesting product vertical for us. So we've been doing a lot of work in a whole different vertical, which really helps us pivot away from the traditional bricks and mortar and retail that we before. So we're excited about them. We're working with all those partners in all those verticals.
And the key is ensuring that we're growing the pie for them and for us with new products, data and analytics and good service.
Speaker 7
Got it. Got it.
Speaker 6
I appreciate the color. Just a follow-up on yield. Maybe a little more of a longer term question. Obviously, the elevated payment rate, what you're talking about is no different from what every other lender is during this transitional year of stimulus. But I'm wondering, as we look forward, and I know there was a question earlier about where yields ultimately normalize.
As you look at sort of the current credit profile, was provided in one of the slides. And as you also think about by 2023, the composition of the portfolio that's coming from buy now pay later, can you talk about sort of what percentage of gross yield you think will be coming from late fees once things normalize versus maybe the profile of ADS a few years ago when it may have been as much as a Because I'm trying to understand, I think that may give the biggest window into ultimately what the gross yield kind of secular outlook is.
Speaker 2
Yes. So as I said, we've changed our product mix and our risk profile. So we're not going
Speaker 9
to we're
Speaker 2
not reliant on late fees as ADS was in the past. So that's not a it's not a place where we want to place our bets. We want to place our bets on returns with good products and getting good yield from people that are good payers.
Speaker 8
So that's important to us.
Speaker 2
So we don't see late fees as being a predominant that predominant in our go forward yield. I'm sure it will play a part, but it won't play a predominant part as it did in the past. If you think about yield and you think about bread, the bread yields are accretive to us because it's a low cost to acquire and low cost to serve. And those yields are accretive to us and they will make enhance our yields going forward. So I'm confident that our yields will be steady going forward.
But and I'm also confident that given the product mix and the risk mix, it's not going be just driven by late fees.
Speaker 0
Your next question comes from the line of Dominic Gabriel with Oppenheimer.
Speaker 7
Taking my questions. And I just want to say I welcome Perry and Wayfair returning really is a testament to the strategic transformation here for sure.
Speaker 2
Yes, got two gifts this quarter.
Speaker 7
Seriously. And it came at a discount, right, on the
Speaker 2
way. Exactly.
Speaker 7
So I guess, as we look at the people who have been really focusing on how on the Fiserv piece saying, you know, it's not an exclusive relationship to some extent. And I was actually just going to flip that on its head and ask you, you know, could you sign up another partner like Fiserv within that type of channel to get after perhaps different partners, merchants that they maybe I mean Fiserv basically has everybody, but is there a way to kind of diversify those partners as lenders will diversify their sub banks?
Speaker 2
Yes. Well, let me just talk about first talk about the Fiserv relationship. Although not exclusive, we are integrated into their dashboard. So when a merchant turns on a Fiserv relationship, we are there and integrate into their dashboard so it's ease of use. So that, although not exclusive, that to me is really important.
We have a so Fiserv is a very important partner of ours and and, you know, and we were doing many things with them across the patch. But to to to your second part of your question, of course, we can, you know, work with another third party, as well. The place where I'm really interested and really want to be bullish on this, particularly internationally if we can, is on the technology platform that we have with RBC. So we are the white label solution to RBC in terms of buy now pay later installment lending and we get a transaction fee there. So the revenue is without receivables.
That's something that we can roll out around the world pretty quickly. That's where there's a real opportunity for us there to have RBC like relationships in other geographic locations.
Speaker 7
Great. Yes, absolutely. Big opportunity. And I know it's a bit early to maybe ask this question, but maybe you could take back out the eight Paul. But if we think about the consumers' excess liquidity, I mean, I think one of the big banks talked about 50% of stimulus still being in their bank accounts.
When I guess, when we think about the holiday season coming up, I guess, you talk about how your new relationships over time can diversify that fourth quarter receivables jump? And how you're thinking about this holiday season with your partners, the spend turning into balances? Thanks so much guys. I really appreciate it.
Speaker 2
Yes. I think you're if you look at the baseline forecast, you'll start to see in the fourth quarter, at least what's projected, you'll start to see savings those savings dissipate a little bit in the fourth quarter as stimulus rolls off and holiday season rolls on. And we're seeing, I got to say, high double digit sales. So we're positioning ourselves very well for the holiday season. And I'd say over I think about it in three areas.
One, as Perry talked about and I talked about, we ramp we're going to ramp we have been ramping and continue to ramp up our marketing dollars. Those marketing dollars are focused on driving incremental spend with our existing partners and acquiring new customers in the third and fourth quarter. So that helps us through the holiday season. We continually add partners to the bread portfolio that will help us through the holiday season. I mentioned earlier that we have a number of really good prospects with RBC that will be ready for the holiday season.
So all those things, in my view, although RBC is not receivables, but it is revenue, all those things will help us really drive to jump start 2022. And in a combination of payment rates moderating and sales continuing to grow, I think we'll will see that as we exit the year, you'll see that receivables growth.
Speaker 11
Excellent. Thanks so much for the help. You.
Speaker 10
You bet.
Speaker 0
Bet. Your next question comes from the line of Reggie Smith with JPMorgan.
Speaker 10
Good morning, Reggie.
Speaker 11
Hey, good morning, guys. I got two quick questions. Number one, just trying to understand, I know you guys have talked a bit about the BRETT integration process, but I'm curious, like, how does that compare to the stand alone beat by now for later companies? So specifically, like, does it take you longer to integrate? Given the nature of the integration, are you on par with how quickly they can be up and running with a client?
Speaker 2
Yes. We are probably, you know, as we could be running as fast. And I think the distinction between us and and the standalones, there's a couple of distinctions. One is we're on the merchant side. So we integrate into the purchase path and give that merchant the option give the customer the option to pay different ways at the merchant.
We're not interested in taking the transaction away from the merchant. We're interested in adding a transaction to the merchant because the merchant is our partner. So that's one distinction. We're not asking them to download an app. We're asking to execute a transaction within the purchase path of that merchant.
That's a real different distinction than the standalongs. Secondly, for our existing partners, we can offer relationship pricing because they're a partner of ours beyond just that transaction. And we have a balance sheet, we have better funding and we have a relationship. So we could be very competitive in terms of pricing as well, another distinction from the third party. But in terms of up and running, we're as quick as they are.
Speaker 11
Got it. And if I can squeeze one more follow-up in. You mentioned, I guess, the success early success you're seeing with millennials on your proprietary card. I was curious, is that a function of, you kinda picking off former Wayfair customers, or are there certain features about the card that resonate with millennials? I guess what I'm asking is, you know, have you considered or or are you thinking about integrating like buy now, pay later functionality or installment functionality into your proprietary card or maybe even rebranding it to make it more of a consumer facing product?
Thanks.
Speaker 2
Great question. Yes, I mean, I think we're seeing early success of millennials because it's a cash back card. So millennials are rational and they like cash flow, so they see it as an opportunity to get something back for their spending. Also we're skewing towards digital with the product as well and we'll continue to make that product digital as well. So in terms of making it a bigger part of our portfolio, we're certainly you know, bullish on this product and, you know, you'll see us, you know, lead into this product next year.
Speaker 11
Got it. I I guess just to make sure it's heard. Is there any idea or thought about making installment like a feature in that product? Could you not talk about that? Or
Speaker 2
Yeah. I I don't
Speaker 10
wanna I don't wanna Yeah. Don't wanna
Speaker 2
Yeah. So I'm sorry if I didn't if I I I didn't answer your question fully. Yeah. We're gonna bring all of all our products capabilities to our proprietary card. So installment buy now pay later, all the capabilities we have we'll make available to our proprietary card.
Speaker 0
At this time, there are no further questions. I would now like to turn the call back over to Mr. Ralph Andretta.
Speaker 2
So thank you all for the call today and your interest in Alliance Data. As you know, we remain focused on executing our strategic plan, building for the future and really excited about the progress we've made and our outlook. So everyone have a terrific day and thank you all very much. Take care.
Speaker 0
This concludes today's teleconference. Thank you for participating. You may now disconnect.