Alliance Data Systems aims to keep leverage ratio under 3 times in 2017, eyes stock buybacks

By Paul Deckelman

New York, April 20 – Alliance Data Systems Corp. plans to keep its leverage ratio of debt as a multiple of EBITDA under 3 times during its current fiscal year, the company’s president and chief executive officer said Thursday.

Edward J. Heffernan told analysts on a conference call following the release of Alliance Data Systems’ financial results for the 2017 first quarter ended March 31 that staying under that 3 times mark “is what we traditionally do.”

During the question-and-answer portion of the call following his own formal presentation and that of chief financial officer Charles Horn, Heffernan told an analyst asking about company plans for spending its anticipated free cash flow this year that “certainly, we instituted a dividend, which is a couple of hundred” millions of dollars. Concurrently with the release of the earnings data, the Plano, Texas-based company announced that its board of directors had declared a quarterly cash dividend of 52 cents per share on its common stock, payable on June 19, to stockholders of record at the close of business on May 15.

Heffernan continued that the company has authorization from the board to buy back up to $500 million of stock, although it already used $415 million of that buyback capacity in the first quarter. Still, he said that “obviously, we have the opportunity to go back to the well, if we so choose, so at a minimum, that gets you to $700 [million of free cash flow allocated].”

He said the company plans to spend around “$400 [million] or so that we’re setting aside for growth.”

With a total of about $1.1 billion thus spoken for, he said, “then that leaves a little room for either maybe a tuck-in deal if there’s something attractive by the end of the year.”

However, he said that the company – which provides data-driven customer loyalty and other marketing incentive programs to consumer-oriented companies such as retailers and airline operators via three segments, Loyalty One, Epsilon and Card Services – is “not going to do anything until we’re sure that all three businesses have executed [on their respective financial goals for the year] and are all contributing and the balance has been restored. So that would be one thing. It wouldn’t be until late in the year.”

Another possibility, he said was to “certainly go back to the well for additional [stock] buyback if we so choose.”

He said that the overall goal was to fully allocate the free cash flow – although neither he nor Horn offered an actual numerical estimate of what that might be – while “trying to keep the leverage multiple under three, which is what we traditionally do.”

The executives did offer full-year 2017 guidance of $7.7 billion of consolidated revenue, a gain of around 5% from last year, and core earnings per share of $18.50, a roughly 10% increase.

As of the end of the first quarter on March 31, the company’s balance sheet showed $1.87 billion of cash and equivalents, up slightly from $1.86 billion at the end of fiscal 2016 on Dec. 31.

Long-term and other debt stood at $6.27 billion at March 31, up from $5.6 billion at year-end 2016.

Alliance Data Systems was most recently in the credit markets last month, pricing €400 million of unrated five-year senior notes at par to yield 4˝% on March 9, after upsizing that offering from an originally shopped €300 million.

The company planned to use the proceeds from that regularly scheduled forward calendar offering to repay a portion of its outstanding revolving line of credit borrowings and for general corporate purposes.

It also visited the junk bond market last fall, pricing a quickly shopped $500 million of 5 7/8% senior notes due 2021, after that offering was upsized from $400 million originally. Those proceeds were also slated for revolver debt paydown and general corporate purposes.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.