Alliance Data Systems Corporation reports 22.1% Net Income growth in 2018 and 0.93% Revenue growth
02/07/2019 • About Alliance Data Systems Corporation (
$ADS) • By InTwits
Alliance Data Systems Corporation reported 2018 financial results today. Overall the company's long term financial model is characterised by the following facts:
- Alliance Data Systems Corporation has low CAPEX intensity: 5 year average CAPEX/Revenue was 2.9%. At the same time it's a lot of higher than industry average of 3.1%.
- CAPEX is quite volatile: $89m in 2018, $46m in 2017, $38m in 2016, $18m in 2015, $19m in 2014
- In the last 5 years the company invested considerably less than D&A: $983m vs. $2,302m. In 2018 this situation was still the same: CAPEX was 200 while D&A was 487
- The company has potentially unprofitable business model: ROIC is 6.8%
- It operates with high leverage: Net Debt/EBITDA is 9.0x while industry average is 2.6x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Alliance Data Systems Corporation's Revenue increased slightly on 0.93%. Revenue growth showed slowdown in 18Q4 - it was -2.4% YoY. Revenue decline was accelerating on average at -5.7 pp per annum in 2014-2018. Revenue growth happened at the same time with EBITDA margin expansion. EBITDA Margin increased on 2.8 pp from 27.8% to 30.6% in 2018.
Gross Margin increased slightly on 1.1 pp from 44.7% to 45.8% in 2018. Gross Margin stuck to a growing trend at 1.7 pp per annum in the last 5 years. SG&A as a % of Revenue showed almost no change in 2018. During the last 5 years SG&A as a % of Revenue bottomed in 2016 at 2.0% and was growing since that time. Stock Based Compensation (SBC) as a % of Revenue showed almost no change in 2018.
Net Income margin increased on 2.1 pp from 10.2% to 12.4% in 2018. During the last 5 years Net Income margin bottomed in 2016 at 7.2% and was growing since that time. The efficient tax rate was 21.3% in 2018 while the average for the last five years was 31.1%.
Investments (CAPEX, working capital and M&A)
Alliance Data Systems Corporation's CAPEX/Revenue was 2.6% in 2018. Alliance Data Systems Corporation showed almost no change in CAPEX/Revenue from 2015 to 2018. Average CAPEX/Revenue for the last three years was 2.8%.
Accounts receivable as a % of Revenue increased slightly on 1.2 pp from 10.7% to 11.9% in 2018. Inventories as a % of Revenue showed almost no change at 3.2% in 2018. Accounts payable as a % of Revenue decreased on 2.0 pp from 15.3% to 13.2% in 2018.
Return on investment
The company operates at good ROE (46.0%) while ROIC is low (6.8%). ROIC showed almost no change in 2018. ROE increased slightly on 1.1 pp from 44.9% to 46.0% in 2018. During 2014-2018 ROIC bottomed in 2016 at 5.9% and was growing since that time. During 2014-2018 ROE bottomed in 2016 at 23.6% and was growing since that time.
Leverage (Debt)
Debt level is 9.0x Net Debt / EBITDA and 10.6x Debt / EBITDA. Net Debt / EBITDA dropped on 1.1x from 10.1x to 9.0x in 2018. Debt decreased on 2.5% while cash decreased on 7.8%.
Alliance Data Systems Corporation has short term refinancing risk: cash is only 41.1% of short term debt.
Valuation and dividends
The company's trades at EV/EBITDA 12.7x and P/E 9.4x.
The company paid 13.0% of Net Income as dividends in 2018.
Management team
CEO total compensation was
$9,978,474 in 2018 which included
$1,150,000 salary.
3.3% of the company is owned by insiders. Insider ownership didn't change in 2018.
The company has 20,000 employees. The number of employees didn't change in 2018. Average revenue per employee in 2018 was
$389,560 and it increased slightly on 0.93%.
Financial and operational results
FY ended 12/31/2018
Alliance Data Systems Corporation ($ADS) key annual financial indicators| mln. $ | 2014 | 2015 | 2016 | 2017 | 2018 | 2018/2017 |
|---|
P&L
|
|---|
| Revenue | 5,303 | 6,440 | 7,138 | 7,719 | 7,791 | 0.9% |
| Gross Profit | 2,084 | 2,625 | 2,861 | 3,449 | 3,570 | 3.5% |
| SG&A | 141 | 139 | 143 | 166 | 173 | 3.8% |
| EBITDA | 1,412 | 1,754 | 1,778 | 2,143 | 2,382 | 11.1% |
| EBIT | 1,098 | 1,262 | 1,266 | 1,646 | 1,894 | 15.1% |
| Tax | 322 | 326 | 319 | 292 | 261 | -10.9% |
| Net Income | 506 | 597 | 516 | 789 | 963 | 22.1% |
| Stock Based Compensation | 73 | 91 | 77 | 75 | 81 | 7.6% |
Balance Sheet
|
|---|
| Cash | 1,077 | 1,168 | 1,859 | 4,190 | 3,863 | -7.8% |
| Accounts Receivable | 743 | 707 | 797 | 822 | 924 | 12.4% |
| Inventory | | | | 234 | 252 | 7.6% |
| Accounts Payable | 456 | 442 | 568 | 651 | 558 | -14.3% |
| Short Term Debt | 3,913 | 4,399 | 7,127 | 7,837 | 9,400 | 19.9% |
| Long Term Debt | 10,262 | 12,707 | 13,822 | 17,980 | 15,784 | -12.2% |
Cash flow
|
|---|
| Capex | 159 | 192 | 207 | 225 | 200 | -11.4% |
| Dividends | | | 30 | 116 | 125 | 7.8% |
| Acquisitions | 1,196 | 45 | | 946 | | |
Ratios
|
|---|
| Revenue growth | 22.8% | 21.4% | 10.8% | 8.1% | 0.9% | |
| EBITDA growth | 7.3% | 24.3% | 1.3% | 20.6% | 11.1% | |
|
|---|
| Gross Margin | 39.3% | 40.8% | 40.1% | 44.7% | 45.8% | 1.1% |
| EBITDA Margin | 26.6% | 27.2% | 24.9% | 27.8% | 30.6% | 2.8% |
| EBIT Margin | 20.7% | 19.6% | 17.7% | 21.3% | 24.3% | 3.0% |
| SG&A, % of revenue | 2.7% | 2.2% | 2.0% | 2.2% | 2.2% | 0.1% |
| SBC, % of revenue | 1.4% | 1.4% | 1.1% | 1.0% | 1.0% | 0.1% |
| Net Income Margin | 9.5% | 9.3% | 7.2% | 10.2% | 12.4% | 2.1% |
| CAPEX, % of revenue | 3.0% | 3.0% | 2.9% | 2.9% | 2.6% | -0.4% |
|
|---|
| ROIC | 7.6% | 6.7% | 5.9% | 6.5% | 6.8% | 0.3% |
| ROE | 30.2% | 25.0% | 23.6% | 44.9% | 46.0% | 1.1% |
| Net Debt/EBITDA | 9.3x | 9.1x | 10.7x | 10.1x | 9.0x | -1.1x |
People
|
|---|
| Insider ownership | 3.3% | 3.3% | 3.3% | 3.3% | 3.3% | 0.0% |
| Employees | 15,000 | 16,000 | 17,000 | 20,000 | 20,000 | 0.0% |
| Revenue/Employee, th. $ | 354 | 402 | 420 | 386 | 390 | 0.9% |
Alliance Data Systems Corporation ($ADS) key quoterly financial indicators
| mln. $ | 18Q1 | 18Q2 | 18Q3 | 18Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 1,382 | 1,904 | 1,947 | 2,056 | | -26.5% | 4.5% | 1.8% | -2.4% |
| EBITDA | 494 | 542 | 645 | 695 | | 3.5% | 13.7% | 6.9% | 18.7% |
| Net Income | 164 | 218 | 297 | 285 | | 12.0% | 58.2% | 27.1% | 5.0% |
Balance Sheet
|
|---|
| Cash | 3,550 | 3,449 | 3,601 | 3,863 | | 90.1% | 77.3% | 8.3% | -7.8% |
| Short Term Debt | 8,974 | 8,761 | 7,854 | 9,400 | | 24.9% | 26.7% | -5.3% | 19.9% |
| Long Term Debt | 15,722 | 15,362 | 16,774 | 15,784 | | 16.6% | 3.8% | 10.4% | -12.2% |
Ratios
|
|---|
| Gross Margin | 57.2% | 47.4% | 45.5% | 42.1% | | 12.6% | 3.1% | 1.3% | -1.5% |
| EBITDA Margin | 35.8% | 28.5% | 33.1% | 33.8% | | 10.4% | 2.3% | 1.6% | 6.0% |
| Net Income Margin | 11.9% | 11.4% | 15.2% | 13.9% | | 4.1% | 3.9% | 3.0% | 1.0% |
Peers in Data Processing & Outsourced S
Below we provide Alliance Data Systems Corporation benchmarking against other companies in Data Processing & Outsourced S industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Verra Mobility Corp ($VRRM) | | | | | 167.8% |
| StoneCo Ltd ($STNE) | | | | 74.3% | 106.0% |
| PagSeguro Digital Ltd. ($PAGS) | | 107.1% | 68.7% | 121.7% | 71.8% |
| Payment Data Systems, Inc. ($PYDS) | | 7.4% | -16.0% | 20.7% | 71.7% |
| StarTek, Inc. ($SRT) | | 12.8% | 8.9% | -4.8% | 66.4% |
| |
|---|
| Median (55 companies) | | 7.0% | 7.6% | 11.8% | 7.5% |
|---|
| Alliance Data Systems Corporation ($ADS) | | 21.4% | 10.8% | 8.1% | 0.9% |
Top companies by Gross margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Verra Mobility Corp ($VRRM) | | | | 97.4% | 97.5% |
| Everi Holdings Inc. ($EVRI) | 25.8% | 38.3% | 36.1% | 34.5% | 79.9% |
| StoneCo Ltd ($STNE) | | | 69.7% | 70.8% | 79.5% |
| Paychex, Inc. ($PAYX) | 70.9% | 70.5% | 71.0% | 70.8% | 69.9% |
| Global Payments Inc. ($GPN) | 62.7% | 63.2% | 60.4% | 51.5% | 67.5% |
| |
|---|
| Median (44 companies) | 38.4% | 39.5% | 39.2% | 38.9% | 40.9% |
|---|
| Alliance Data Systems Corporation ($ADS) | 39.3% | 40.8% | 40.1% | 44.7% | 45.8% |
Top companies by EBITDA margin, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Visa Inc. ($V) | 64.0% | 68.9% | 55.6% | 69.2% | 65.8% |
| FleetCor Technologies, Inc. ($FLT) | 56.1% | 50.4% | 52.0% | 50.8% | 55.9% |
| StoneCo Ltd ($STNE) | | | 31.4% | 26.0% | 53.0% |
| Mastercard Incorporated ($MA) | 57.5% | 56.3% | 56.9% | 56.5% | 51.8% |
| Everi Holdings Inc. ($EVRI) | 9.6% | 14.7% | 3.0% | 20.4% | 45.2% |
| |
|---|
| Median (56 companies) | 20.4% | 21.0% | 21.2% | 20.6% | 19.2% |
|---|
| Alliance Data Systems Corporation ($ADS) | 26.6% | 27.2% | 24.9% | 27.8% | 30.6% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| Crypto Co/The ($CRCW) | 0.0% | 0.0% | | 1,216.6% | 853.5% |
| Steel Connect, Inc. ($STCN) | 0.6% | 1.5% | 1.7% | 1.1% | 75.6% |
| Everi Holdings Inc. ($EVRI) | 3.0% | 9.3% | 9.4% | 9.9% | 21.9% |
| StoneCo Ltd ($STNE) | | | 7.2% | 18.4% | 8.9% |
| Cardtronics plc ($CATM) | 10.2% | 11.9% | 9.9% | 9.6% | 8.0% |
| |
|---|
| Median (56 companies) | 3.1% | 3.0% | 3.2% | 2.9% | 3.2% |
|---|
| Alliance Data Systems Corporation ($ADS) | 3.0% | 3.0% | 2.9% | 2.9% | 2.6% |
Top companies by ROIC, %
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| GreenSky, Inc. ($GSKY) | | | | 156.4% | 93.7% |
| Mastercard Incorporated ($MA) | 63.5% | 57.5% | 57.5% | 60.6% | 64.7% |
| Paychex, Inc. ($PAYX) | 54.5% | 58.7% | 61.9% | 63.9% | 64.5% |
| NIC Inc. ($EGOV) | 64.6% | 61.2% | 63.1% | 52.1% | 39.3% |
| Automatic Data Processing, Inc. ($ADP) | 23.9% | 28.9% | 37.9% | 36.6% | 37.5% |
| |
|---|
| Median (62 companies) | 14.1% | 13.1% | 11.7% | 10.7% | 12.1% |
|---|
| Alliance Data Systems Corporation ($ADS) | 7.6% | 6.7% | 5.9% | 6.5% | 6.8% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2014 | FY2015 | FY2016 | FY2017 | FY2018 |
|---|
| StarTek, Inc. ($SRT) | -0.1x | | 2.2x | 2.3x | 18.4x |
| Square, Inc. ($SQ) | | | | | 13.3x |
| Steel Connect, Inc. ($STCN) | -12.5x | | | | 12.6x |
| Exela Technologies Inc ($XELAU) | | | 8.1x | | 9.7x |
| Moneygram International, Inc. ($MGI) | 5.5x | 9.5x | 4.5x | 8.0x | 8.0x |
| |
|---|
| Median (54 companies) | 0.4x | 0.5x | 1.3x | 2.3x | 2.0x |
|---|
| Alliance Data Systems Corporation ($ADS) | 9.3x | 9.1x | 10.7x | 10.1x | 9.0x |
