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Total second-quarter 2009 revenue of $460 million, adjusted EBITDA of $125 million, net income of $29.4 million, net income per diluted share of $0.51 and cash earnings per diluted share of $0.95 represented declines of 9 percent, 23 percent, 37 percent, 15 percent, and 9 percent, respectively, versus the second quarter of 2008. See "Financial Measures" below for a discussion of adjusted EBITDA, cash earnings per diluted share and other non-GAAP financial measures.

Excluding changes in the foreign exchange rate for the Canadian dollar, revenue would have been $486 million, representing a 4-percent decline; adjusted EBITDA would have been $149 million, representing an 8-percent decline; and cash earnings per diluted share would have increased 16 percent to $1.21, compared to the second quarter of 2008 in each case.

The Company's previously issued second-quarter guidance for cash earnings per diluted share of $1.05 assumed an exchange rate of $0.80 US per Canadian dollar. Actual results reflect a significantly stronger Canadian dollar, which averaged $0.86 US per Canadian dollar for the quarter. The higher Canadian dollar benefited Canadian operations by approximately $3 million, but resulted in a $16 million foreign exchange loss on its U.S. dollar denominated investments. Thus, against guidance, results were impacted by a net $13 million foreign exchange loss, or $0.14 on a cash earnings per diluted share basis. Had the Canadian dollar tracked to the Company's guidance of an exchange rate of $0.80 US per Canadian dollar, cash earnings per diluted share would have been $1.09, or $0.04 above guidance.

The $0.14 incremental foreign exchange loss is not expected to impact the Company's ability to achieve its full-year guidance. It is expected that a stronger Canadian dollar will continue to benefit operations in the third and fourth quarters and mitigate the impact of the second-quarter loss.

In summary, in 2009 versus the prior year, the Company is facing three major headwinds: higher loss rates amounting to $90 million; interest only strip grow-over of $30 million related to the Company's securitization program; and an impact of $40 million due to foreign exchange rate fluctuations. In total, these headwinds equate to $160 million, or approximately $1.75 of a negative impact to cash earnings per diluted share. The Company expects the first half of the year to be the most challenging.

Ed Heffernan, president and chief executive officer of Alliance Data, commented, "Despite these significant headwinds that we faced this quarter and a challenging first half of the year, we saw positive trends in all of our businesses this quarter.

"We announced sizeable client wins, expansions and/or renewals across all three businesses and also successfully completed several capital raising transactions for securing additional liquidity for both corporate operations and Private Label funding."

Heffernan continued, "Our Loyalty Services segment, specifically the Canadian AIR MILES Reward Miles program, continued its strong performance. This quarter Epsilon has returned to solid organic growth, and our Private Label business is showing accelerated growth in sales, portfolio size, and statements, as well as lower funding costs and stabilizing delinquencies. Also, while the U.S. unemployment rate continues to increase above all initial estimates, we believe our strategy of continuing to grow our private label file through the addition of high-quality accounts while writing-off the less creditworthy accounts will serve as a stabilizing force against factors associated with higher macro unemployment.

"Combined, these positive factors are helping to mitigate many of the headwinds. With our plans to acquire additional private label files and continue with our highly accretive common stock repurchase program, we remain confident with meeting our full-year cash earnings per diluted share guidance. Looking ahead, 2010 is shaping up nicely as all three businesses are well positioned for growth, which along with a significantly lower share count and much of the headwinds behind us, should drive strong results and even more significant free cash flow per share."

SEGMENT REVIEW

Loyalty Services: On a constant currency basis, revenue was relatively flat as compared to the prior year period ($193 million for the second quarter of 2009 versus $200 million in the prior year) reflecting a slowdown in collectors redeeming their AIR MILES reward miles and lower revenue from other products. U.S. dollar reported segment revenue was $167 million, or a 16 percent decline. This suggests that collectors are "hoarding" reward miles and viewing them as a liquidity source to be tapped as needed until the recession recedes.

On a constant currency basis, adjusted EBITDA continued at a strong pace, growing 17 percent to $62 million versus $53 million last year. Results continue to be driven by prior years' strong issuance growth combined with firm pricing, virtually 100 percent client retention, a fully built-out infrastructure and strong leverage on reward costs. The slowdown in redemptions softened revenue but had little impact on earnings. Adjusted EBITDA margin expanded to 32 percent, reflecting continued leverage in the program and the impact of the reduced low-margin redemption and other product revenue. Operating EBITDA added $31 million of cash flow above the reported adjusted EBITDA, reflecting primarily the timing of cash receipts/disbursements.

Reward miles issued, a key metric to drive future earnings, as expected remained soft but is trending in the right direction. Issuance was down less than 2 percent in the second quarter versus the prior year period, reflecting a moderate improvement from the first quarter's decline of 4 percent. Soft issuance can be attributed to less usage on sponsors' credit card programs as consumers cut back on discretionary spend and the continued grow-over from high gas prices last year, which drove strong issuance.

Outlook: On a constant currency basis, full-year revenue is expected to increase in the single-digits reflecting the slowdown in reward miles redeemed, while adjusted EBITDA is expected to continue with strong double-digit organic growth for the year. Operating EBITDA is back on track and is expected to add approximately $40 million of cash flow to reported results for the year.

Reward miles issued growth is expected to turn positive in the third quarter and exit the year in the high single-digit growth range. The grow-over impact from issuances from high gas prices will anniversary in the third quarter and the fourth quarter, as will the softness in consumer spend on sponsors' credit cards in the fourth quarter. The combined impact of these anniversaries is expected to return reward miles issued to positive growth rates. As announced last week, the launch of BMO Bank of Montreal's new and increased value proposition on the bulk of its credit cards is expected to be a significant driver in additional issuance growth.

Finally, the headwind from a weaker Canadian dollar this year ($0.85 full-year 2009 estimate versus $0.94 in 2008) will continue to dissipate and finally anniversary in the fourth quarter. This impact from the lower exchange rate and foreign exchange losses on U.S. investments will hit 2009 for approximately $40 million in adjusted EBITDA (over $0.40 per share). Fortunately, two-thirds have been absorbed through the first half of 2009 and the full anniversary will occur in the fourth quarter leading to a strong start in 2010.

Epsilon Marketing Services: Epsilon returned to growth in the second quarter after two quarters of flat performance. Revenue grew 7 percent to $123 million, and adjusted EBITDA grew by 15 percent to $30 million versus the second quarter of last year. The segment's largest service offerings, including database and digital marketing solutions, continued to drive the results, and Epsilon's large database clients maintained or expanded their significant commitments to their loyalty programs. Additionally, Epsilon signed a record number of new digital clients in the first half of the year as marketing dollars continued to shift away from traditional spending verticals and into Epsilon's highly targeted ROI-based universe. The remaining one-third of Epsilon's business, consisting of proprietary data services including the Abacus catalog coalition, turned in a flat performance versus prior year. The Company views this as a positive trend that will lead to future growth.

Outlook: Epsilon's return to solid growth is consistent with the Company's previous guidance of approximately 7 percent top and bottom line organic growth for the full year. Despite tremendous cutbacks in marketing spend across the globe, the ongoing migration away from traditional channels and toward Epsilon's transactional and digital based offerings continues. The pipeline at Epsilon is the strongest in the history of the business, resulting from both signed deals and deals in progress.

Private Label Services and Private Label Credit: The financial performance for Private Label Services and Private Label Credit continued to negatively affect the Company's overall performance. For the second quarter of 2009, Private Label Services revenue and adjusted EBITDA were down 10 percent and 18 percent, respectively, versus the prior year. Private Label Credit revenue and adjusted EBITDA were down 17 percent and 39 percent, respectively, versus the prior year. On a combined basis, eliminating intercompany activity between the two, Private Label revenue of $159 million was down 16 percent from the second quarter 2008, and adjusted EBITDA of $63 million was down 33 percent, or $30 million, from the second quarter 2008. Despite this performance, new client signings and a return to positive trends, specifically credit sales, portfolio growth, funding and delinquencies, were seen. Recent signings from both Justice and Big M, Inc. following the first-quarter signings of HSN, Haband and Springstone Financial continue to demonstrate that private label programs provide retailers with a proven tool to drive their sales.

Credit losses increased to 9.8 percent during the quarter, reflecting both the expected seasonal upturn in losses as well as the more challenging macro environment for the Company's retail clients. Losses were up approximately 300 basis points versus the prior year, which resulted in a decrease of approximately $30 million on revenue and adjusted EBITDA for the quarter. The loss rate is running approximately 50 basis points above the unemployment rate, somewhat better than the expected spread, but offset by higher than expected unemployment levels. Delinquencies remained stable at 6.2 percent for the quarter. This marks the fourth consecutive quarter of stable delinquencies.

Credit sales growth continued to accelerate and grew 6 percent in the second quarter versus last year, double the 3 percent growth rate in the first quarter. This positive trend follows last year where sales were down 3 percent for the entire year.