Loyalty Ventures Inc.

Good afternoon, and welcome to YRT Ventures' second quarter 2022 earnings conference call. At this time, all parties have been placed on a listen-only mode. Following today's instructions, the floor will be open for your questions. It is now my pleasure to introduce Jack Taft, Senior Director of Investor Relations. Jack, the floor is yours.

Thank you, Operator. Copies of the slides we will be reviewing in the earnings release can be found on the investor relations section of our website. Hosting today's call, we have Charles Horn, President and Chief Executive Officer of Loyalty Ventures, Jeff Chesnut, Executive Vice President and Chief Financial Officer of Loyalty Ventures, and Sean Stewart, President of the A.R. Miles Reward Program. 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. Loyalty Ventures 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 and loyaltyventures.com. With that, I would like to turn the call over to Charles Horn. Charles?

Thank you, Jack, and thank you all for joining us today to review our second quarter results. Let's turn to page three. Our consolidated results in the second quarter reflected the steady performance of air miles, along with a challenging period for brand loyalty, where higher costs and more cautious consumers led to margin loss and the impairment of the segment's goodwill. Further, Amid the U.S. equity market's worst first half in more than 50 years, AirMiles received notice that a longtime partner was exiting the coalition, and the combined effect resulted in a significant reduction in loyalty ventures market valuation. These headwinds have created some challenges, but we have strengthened our leadership across the organization, and we are confident in the marketing positioning and future opportunities for both AirMiles and Grand Loyalty. We will share with you today our action plans to confront these new developments with strategies to drive growth for both our partners and ourselves. Let's begin with a recap of the second quarter. At air miles, performance was in line with expectations due to the inherent visibility in our operating model. The issuance was up approximately 8% from the second quarter of 2021, with particular strength in the credit card and fuel verticals. Brenolte's results were impacted by the continuing effects of the invasion of Ukraine. which have compounded existing supply chain pressures and created wide-ranging inflation and recessionary conditions in this segment's key European markets. While Brent Loyalty's top line improved to about 33% from the second quarter of 2021, it suggested the EBITDA was essentially flat with the previous year due to increased logistics costs. We expect these conditions to persist throughout the year, and we'll share more color on Brent Loyalty's action plan later. Finally, we recognized that our corporate capital structure was not optimally suited for the investments we were making at AirMiles and the market conditions we were facing at Brand Loyalty. In partnership with key lenders, we proactively amended our debt agreements to provide more certainty and flexibility as we executed strategic plans over the coming quarters. As before, we remain committed to the capital allocation priorities that we outlined earlier this year, which are designed to deliver stronger marketing ROIs, and top-line growth for our sponsors and clients, and in turn, drive growth at both Air Miles and Brand Loyalty over time. Slide 4 highlights the key financial metrics for the second quarter. Total revenue for the quarter was $172 million, and adjusted EBITDA was $27 million. Revenue increased 14% year-over-year, while adjusted EBITDA declined 15%. For the quarter, we reported a net loss per share of $17.95, which included a goodwill impairment of $423 million and restructuring and strategic transaction costs of $5 million, which totaled $17.32 per share. Year-to-date, total revenue is flat compared to the prior year, and adjusted EBITDA of $52 million is down $19 million. Through June 30th, we reported a net loss of $441 million, and a net loss per share of $17.92, which is inclusive of the $17.37 reflecting the effects of the goodwill impairment and $6 million of restructuring and transaction costs. Now, let's discuss the recent developments for both brand loyalty and air miles. Slide five illustrates the broad geographic area that brand loyalty serves, as well as selection of the campaigns currently underway. Geographically, EMEA continues to represent the largest market for brand loyalty, followed by the Asian Pacific region. Our team is working to expand our footprint in the Americas as we believe this area represents an important growth opportunity for this segment over time. In terms of active campaigns in the second quarter, a selection is highlighted here. While acknowledging this segment's underperformance this quarter, we believe brand loyalty's combination of global, grocery relationships, and exclusive supplier partnerships provide a differentiated foundation for future sustainable growth. Turning to slide six, let's review the key challenges for brand loyalty in the second quarter that resulted in disciplining performance and lower expectations for the balance of the year. Brand loyalty's original outlook for 2022 was based on a post-COVID recovery after two years of pandemic and logistics-related disruptions to the segment's operating environment. In response to Russia's invasion of Ukraine, brand loyalty paused its operation in Russia, as we indicated in mid-March, which we expect to result in a roughly 16 million impact to the top line. As the conflict persisted, it created a more pronounced negative impact on the region's macro environment. European consumers are now concerned with further increases in food and energy prices, along with ongoing supply chain issues and other widespread inflationary and recessionary concerns. This has resulted in three primary challenges for the brand low-key business, which contributed to the goodwill impairment of $423 million. First, the higher cost environment means that Brent Lilke's margins will reflect pressure for merchandising and shipping costs that exceeded expectations. Because its contracts with grocers are signed 9 to 12 months in advance, Brent Lilke does not have terms permitting the pass-through of unexpected increases in these costs. The team has taken two key steps to manage this new dynamic. The business has moved to more regional sourcing where possible to mitigate disruptions in the ocean freight market. And earlier this year, Brand Little Tea locked in an ocean container rates and capacity for reward merchandise not readily available through original sourcing. The combination of more local sourcing and ocean freight price hedging will deliver better cost certainty for our clients going forward. In addition, Brand Little Tea saw key prospects in the market close to Ukraine withdraw from the near-term pipeline. These grocery retailers are taking a wait-and-see approach in terms of the macro landscape before returning to business as usual. In response, Brand Little Tea will leverage this data to illustrate to potential clients that its campaigns can drive top-line growth for all of its retail partners and that grocers who rely upon Brand Little Tea's campaigns can avoid across-the-board price cuts or discounting that could take years to recoup. And while Brand Little Tea knows that its campaigns can deliver top-line growth for clients even in uncertain times, the team is proactively implementing operational efficiencies to reduce costs given the near-term slowdown. Finally, the business saw some campaigns underperform in the second quarter at the reward offering, which was planned a year in advance, did not match the current interests and economic considerations of the consumer. Brand loyalty's target consumers are currently seeking to stretch their grocery budget. This sentiment resulted in less shopper interest in some active campaigns featuring aspirational or luxury rewards. In response, Brand Loyalty's reward merchandise strategy has shifted to focus on the essentials that consumers need in their everyday life. Categories like housewares and entertainment are especially relevant when shoppers are stretching their budgets and focused on staying in rather than going out. Brand Loyalty also continues to develop digital loyalty promotions, and we believe these innovations will give the business more flexibility up to the start date of a program to tailor campaigns to best reflect the current market conditions. By year-end, we expect to have activated several of these campaigns, which will provide the proof points to enable more retailers to make the shift from traditional programs to fully digital campaigns. As we've noted before, digital rewards bypass the physical supply chain and are ESG-friendly. Beyond these discrete action plans, brand loyalty is also reducing the risk profile of its business development efforts. The brand loyalty team is now focusing on known geographies, relying on proven reward offerings and actively pursuing new clients and adjacent verticals. While these changes could result in slower near-term top-line growth, we expect we'll improve the business's margin profile and produce more durable returns given economic conditions. While we are disappointed with this segment's performance and the impairments, we are encouraged by the path forward, which includes operational efficiencies, inventory alternatives, and structural campaign adjustments, and I look forward to sharing our progress later this year. At this point, I'd like to introduce Sean Stewart, Aramont's president, who will discuss the recent developments for the program. Sean?

Thanks, Charles. Before I begin with slide seven, I'd like to say I'm extremely excited to be leading Air Miles through this transformative period. A lot has changed since I was last at Air Miles a dozen years ago. I'm coming up on 100 days of my new role, and I've been continuously impressed by our team's passion and commitment to create value for our sponsors and our collectors. They're leading our efforts to innovate and elevate the coalition so that we maintain our standing as a best-known and best-loved loyalty brand in Canada. We believe these efforts will lead to a vibrant and growing coalition and would like to provide more detail here. Today's Air Miles program already has a set of powerful attributes that benefit both our collectors and our clients. Our collectors can earn and redeem across more than 300 brands in Canada. These brands represent approximately 80% of consumer spend categories, meaning we have extensive data on customer behavior at an individual level across multiple retail verticals. This data enables us to engage and digitally market to a large number of Canadians, providing both insights and scale to our sponsors they could not achieve on their own. Going forward, we will focus on growing our partner base to capture more retail spend and to provide more choice of brands to our members. Collector value is driven by digital engagement, shopping multiple brands, and being part of our credit card programs. We will focus on digital marketing programs designed to drive these behaviors. These priorities will help us attract new sponsors and collectors to the coalition going forward. In addition, we are pursuing new revenue streams that involve supporting clients that do not participate in the current traditional coalition. For example, we have run marketing programs for several large U.S. state tourism organizations. These programs were created using air miles travel data and currency in concert with our digital reach to target prospective travelers to these specific destinations. In one program, the tourism board was able to reach our collectors with relevant destination content and convert searches into purchases, resulting in an almost 40% lift in flight bookings attributed to this campaign. This campaign helped position the state as a leading vacation destination for our collectors and convert browsing collectors into travelers. These are the types of non-traditional partnerships we are building, leveraging our data, digital reach, and currency to benefit our clients' growth objectives. Slide 8 provides an overview of the different elements of today's air miles ecosystem. Even as we innovate around new partnership models, it's important to remember that the air miles program has a history of developing creative ways for sponsors to participate in the coalition at a commitment level that fits their business. Airmileshops.ca gives collectors the opportunity to earn air miles when they shop online at hundreds of top brands, including Apple, H&M, Nike, and Amazon. The e-commerce experience for our collectors is quick and efficient, with a seamless handoff to the Airmile shop site to the brand site. In the past quarter, we've added new top retail names, including Farfetch, Gymshark, and The Home Depot. Our next tier of sponsored participation is through our card-linked offer platform, which we launched late last year. As we noted on a year-end earnings call, collectors now can link any Canadian-issued MasterCard to the Airmiles account and earn bonus miles at leading retailers. Going forward, we will look to expand both our cart partnerships as well as our network of participating retailers, with each of these initiatives making it easier for collectors to earn more miles at more locations where they want to shop. Our deepest relationships are with our core retail partners, including BMO, American Express, Shell, and Metro, which can issue base and bonus miles to collectors on every transaction, both in-store and online. This has been the foundation of the Air Miles program since 1992, and continues to anchor the program today. But our other tiers provide a pathway for retailers to see firsthand the power of the Coalition and the way that best fits their needs. As an illustration of the scale of the Coalition's physical footprint in Canada, for brick-and-mortar issuers, we estimate that more than 80% of Canadians live within 10 kilometers, or about 6 miles, of three or more sponsors after considering the recent Sobeys notification. We know that shopping multiple brands continues to be a key driver of collector engagement and a focus of our marketing communications. Overall, each element of the air miles ecosystem amplifies the opportunity to earn miles and the number of retailers that can join the program. As we continue to strategically develop and deploy new models to connect collectors with the brands they love, we believe the program will continue to grow and prosper. Moving to slide nine, Let's discuss the recent developments from the second quarter. Historically, Air Miles has maintained exclusive relationships in the grocery vertical, but as we look ahead, we expect to offer our collectors new opportunities to shop and earn miles at a variety of different retailers in the grocery space, as well as in previously unavailable adjacent verticals, in categories including convenience stores, mass merchandise, discount, and everyday low price. We are actively seeking new partners across our tiers of participation. We look forward to sharing our progress with you as we move through the second half of 2022. Air Miles plans to use a combination of brand-lit relationships, like the ones we just described, to expand our weekly touchpoints for collectors to drive transaction volume and frequency higher. And as we work to give our collectors more choice for their grocery spend, we are excited to announce our BMO Grocery Accelerator program. As of August 1st, cardholders of the Air Miles Bank of Montreal credit cards can earn double miles on their credit card spend at any grocery retailer in Canada. With consumers working to stretch their grocery dollars, we believe this program will be enthusiastically received by our existing collectors. It should also drive new members to the program while spurring cardholder acquisition for the Air Miles BMO credit cards. Our existing Air Miles credit cards are among our most active and engaged collectors, and we expect this campaign will help new cardholders quickly discover the benefits of double dipping when earning miles. As we work to add new partners, we are equally attentive to the upcoming renewals with our existing sponsors. As a founding member of the coalition from 1992, Bank of Montreal is a key partner, and our current agreement matures in the fourth quarter of next year. Discussions are already underway with BMO and other current sponsors to secure renewals that create value for our sponsors, air miles, and our collectors. On slide 10, let's review the progress we've made on our strategic investments. As we previously outlined, we are committing an incremental $20 to $25 million of capital spending to drive consumer engagement, accelerate digital innovations, and enhance our data and analytics capabilities. The first half of the year was initially focused on translating our air miles collectors and sponsors' needs assessments into a technology roadmap. We subsequently assembled our agile digital development teams and kicked off our first wave of projects with a focus on delivering near-term requested upgrades to the mobile app experience. And I'm pleased to report that these efforts are already yielding returns. In fact, we have two projects that we'll be rolling out in the next 30 days. The first involves a series of improvements to our mobile enrollment process to make it easier and faster for consumers to join the coalition and become collectors. And as the AirMiles app becomes the daily hub for user engagement, we're updating the authentication process so collectors will have seamless access to new offers and rotating incentives. The second provides collectors more clarity and visibility into their miles balance, which we expect will lift customer satisfaction while reducing inbound calls to our customer care centers. As we progress through the second half of 2022, we plan to leverage a set of near-term progress metrics to gauge the impact of our digital innovations at air miles. We expect these metrics to include the monthly active app users and total active collectors. While these metrics may change over time as our technology roadmap unfolds, they will serve as a helpful near-term guide to assessing the impact of our recent investments. Additional capital projects are underway and moving at pace, though we now expect our incremental investment will stretch into 2023 due to IT bandwidth constraints. Of our incremental investment, we expect that approximately $15 million will be deployed in 2022, the balance occurring in the first half of 2023. Page 11 highlights the air miles reward miles issuance and redemption trends over the past nine quarters. Air miles reward miles issued in the second quarter were higher than the first quarter of 2022 by 13% and higher than the year-ago quarter by 8%. Redemptions in the second quarter were up 17% from Q1 of 2022 and about 54% from the second quarter of 2021, in line with the broader accessibility of travel rewards compared to the year-ago period. The ratio of miles redeemed to miles issued, what we call the burn rate, was consistent with the first quarter, and we expect it to remain elevated across 2022 as regular travel patterns resume. Collectors pent-up interest in travel carried over from the first quarter, and air miles saw a five-times lift in travel-related redemptions compared to the year-ago period. We expect the burn rate to normalize in 2023 as the renewed demand for travel levels off, and we add new sponsors and earning opportunities for our collectors. As we noted last quarter, this period of elevated redemptions is the natural offset to the last few quarters when we saw historically lower redemptions due to the pandemic-related limitations on travel. A redemption settlement assets account had a balance of $672 million at quarter end, funded by cash we set aside for redemptions. We are confident that the redemption settlement assets will cover periods of higher redemptions without an impact on our liquidity position or operating cash flow. Now I'll turn it over to our CFO, Jeff Chesnut, for financial review.

Thanks, Sean. Slide 12 presents our results for the second quarter of 2022 compared to the corresponding period of 2021. Revenue in the quarter was up 14%, which was a combination of a 7% decrease at air miles and a 33% increase at brand loyalty. Net loss and diluted EPS were both down quarter over quarter as a result of the goodwill impairments. margin loss from revenue declines a full quarter of interest expense. Slide 13 presents our segment level results for the second quarter of 2022. In the second quarter, air miles revenue declined approximately 5 million, with about half driven by a decline in service revenue representing the flow-through impact of lower miles issuance in 2020 and 2021. The balance of the decline was associated with higher cost of redemptions, which are netted out from gross revenues to arrive at our revenue presentation. The margins on redemptions contracted in connection with the enhancements we made late last year to the collector value proposition. Brand loyalties revenue improved by 26 million due to the size and timing of campaigns which can vary meaningfully year over year. Air miles adjusted EBITDA declined 14% or 5 million as compared to the second quarter of 2021 due to the revenue impact combined with personnel costs. These costs were partially offset by reduced occupancy expenses, and we will accelerate these cost saves with our new enterprise-wide operational efficiency plan, which we expect will result in both in-year and run rate savings. Brand loyalty's adjusted EBITDA in the second quarter, while still negative, improved from the year-ago period due primarily to the increase in revenue. Although we continue to project that brand loyalty's top-line performance will strengthen across the year, the persistence of higher production and logistics costs plus the impact of recent FX movements, suggest that brand loyalty's full-year adjusted EBITDA will be less than the 2021 result. However, the changes we're implementing organizationally, like the operational efficiency and savings plan and the brand loyalty-specific changes that Charles mentioned earlier, will help brand loyalty secure its financial foundation and position it for profitable growth as we move forward. Let's discuss our outlook for the balance of our fiscal year. When we originally provided guidance on our first earnings call in February, it was predicated on post-COVID recovery and a healthy economic climate in our key markets. Russia's invasion of Ukraine, persistent supply chain issues, surging inflation, rising rates, and client developments have amplified the challenge to accurately forecast the second half of 2022. Considering these uncertainties, we project that our full-year adjusted EBITDA for 2022 will be approximately $110 million. This also represents air miles EBITDA estimates as brand loyalty's contribution and the corporate costs will generally offset each other. This performance, with add-backs permitted by our debt agreement, would be in compliance with our revised loan covenant. We expect our next guidance update will be later this year. The economic climate has worsened since the start of the year, and we're responding proactively and prudently to prepare loyalty ventures to weather these conditions. To maximize both our results and our liquidity, We are implementing an operational efficiency plan across the enterprise. While reducing our expense base is a component of the plan, we're focused on more than finding cost savings. We are reassessing each of the steps we take in our daily business processes with a goal of eliminating or reconsidering the lower return elements. This will enable us to focus our teams and our efforts on only those initiatives that deliver the strongest return on investment or are business critical. For example, this period, we closed our offices in Calgary and Montreal and continued downsizing our footprint in Toronto. In addition, we're evaluating workforce adjustments to reduce our cost of service, and collectively, we expect these initiatives to deliver approximately $15 million in run rate savings annually. We also modified our debt to EBITDA covenant, which is now 5.75 times through September 30th, 2023, before stepping down to 5.5 times in the fourth quarter of 2023 and ultimately declining to 4.75 times. Loyalty Ventures' prior covenant was five times through September 30th of this year, stepping down to 4.5 times at year end. As Charles noted earlier, this adjustment will provide more certainty and capacity as we continue transforming our business as we've outlined today. As we enter the second half of the year, we will continue to focus on our liquidity and our balance sheet flexibility. Slide 16 highlights that our liquidity at quarter end was $224 million, exclusive of the redemption settlement assets. The $15 million of annual run rate savings from our operational efficiency plan will provide self-funding options for future projects. Our average interest rate for the quarter was 5%, and for every 100 basis point interest rate increase, our interest expense will increase approximately $6 million annually. We ended the second quarter with no borrowings on our revolver, and we reduced our gross debt by $13 million, consistent with our focus on deleveraging while investing in our future. This resulted in a covenant leverage ratio of four times. On a net debt basis, we finished the quarter at about $552 million. Overall, we have sufficient liquidity to support the strategic objectives we've prioritized and outlined here. We remain both realistic about the near-term impact of the macro environment and optimistic about the medium and longer-term prospects for both air miles and brand loyalty. In recognition of the current economic conditions, we implemented an ongoing operational efficiency plan and adjusted our debt covenants to reflect both the state of our business and the state of the broader economy. Brand loyalty will navigate the near-term turbulence in its key markets while developing next-generation loyalty solutions that resonate with consumers and reduce its exposure to supply chain volatility. At Air Miles, Sean and his team are working to secure the core of the program with extensions for key clients, while also piloting new ways to participate in the program for both collectors and sponsors. We're confident that these new initiatives, along with the IT investments we've previously described, will position Air Miles to retain and grow its existing base of collectors, while adding new members who are equally passionate about the value inherent in our coalition. Altogether, these strategic priorities are designed to address our current challenges while providing a strong and durable foundation for sustainable future growth. Operator, we are now ready to open the lines for questions.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. And your first question comes from the line of Tony Kaplan, With Morgan Stanley, your line is open.

Thank you. Supply chain disruption seemed to be a continuing issue in the quarter. You mentioned that this should last throughout the year. Will we still see this impacting 2023 results, or should we be done by then?

Yeah, Toni, I think that we should be able to alleviate some of these issues before 2020-23. We actually have quite a bit of inventory right at the moment because we got ahead of some of the programs. But then, unfortunately, some of the programs, as we talked about earlier, didn't perform as to our expectations. So I'd say at this point, we're actually going to be focused more on trying to be nimble, getting the right programs and markets, reducing our overall inventory levels, sourcing more locally, reducing some of that pressure of trying to get things down to Southeast Asian ports. So I don't want to use this situation where it's continuing into 2023. How about you, Jeff?

Yeah, Charles, I think that's a good summary in terms of the actions that we've taken and our expectations for next year.

Great. And then just when you think about on the sponsor side for air miles, just how is the pipeline looking? I know you talked about you're looking at getting into some adjacent verticals. Are you planning on replacing the grocer-sponsor and getting into new verticals, or is it sort of either-or and what the tradeoffs are there? Thanks.

Hi, Toni. Sean here. I'll talk about new business development and your question about the grocer separately. On the new business development pipeline, it's been stronger than it has been in some time. And as you've referenced, there are some verticals that are now open to us, including convenience, discount, mass merchants, which are obvious, I would call, frequency replacements for grocer. We still think grocery is a key category. But as we look at collector engagement, we're starting to think about it, too, in terms of frequency of engagement with the program. And when you add up the 300 brands we have in the program, we start to see how relevant we are across retail categories. The one thing interesting, my first 100 days I've noticed and spent a lot of time with prospects in the business development pipeline is the real strong response to our kind of new go-to-market model. So what we outlined in our remarks is this flexibility in removing kind of barriers to entries for brands. And whether that's card link offers, whether that's air mile shops, making it easier for brands to onboard with us in a way that fits their business needs best. So we look to have more news coming through the back half of this year to share on the business development pipeline, but we're looking strong.

Thank you.

Your next question comes from Kyle Peterson. Your line is open.

Hey, good afternoon, guys. Appreciate you taking the question. I wanted to touch a little bit on the Sobeys transition within Air Miles and the opportunity to backfill that within the grocery vertical. Is this something that you guys at least plan on attacking, more trying to get a traditional coalition replacement in there, or is this something more between a combination of whether it's some card-linked offer programs and the grocery accelerator program with BMO that you plan on attacking it that way? I just want to get a sense for the strategy moving forward and how we should anticipate that. Okay.

I think the key for us is getting brands and giving opportunities for collectors to earn. When we talk about traditional model and card link offers, that's really the how. And it's not a fixed how. For instance, if we get a brand to join with a quicker speed to market on card linked offers, that's not to suggest they can't become more deeply engaged in the program over time. And that benefits them. I mean, the car link offers is largely on the issuance side, but when you want to talk about air miles redemption, there can be great value to that happening instantly in lane. And so these are the conversations we'll have with brands, but we expect that the models, regardless of how they're onboarded, can evolve.

Got it. That's helpful. And then, you know, I guess just to follow up, particularly on your global strategy. I know historically you guys had a pretty minimal footprint in the U.S. due to some contractual things, but I guess given that a lot of your management team sits in the U.S., you guys are listed on a U.S. exchange, do you guys see opportunities to be able to expand in the U.S. moving forward how are you guys kind of attacking those and how should we think of that moving forward?

It's definitely a situation where we think both businesses can move into the U.S. I'll be candid, it's gone a little bit slower with the brand loyalty operations than what we thought going into the U.S. Different markets, different products, different way they evaluate the impacts of the program. It's something we definitely want to do. I would like to say that we are looking for M&A. It's probably a little bit premature for us to do so. I do think the ability to do consulting in the U.S., to line up individual loyalty programs and run them for clients would be very important. Right now, our focus, though, is growing air miles, replacing the Sobeys exit. And the focus is adjusting the business model for BL to be more nimble, quicker to market, and deliver results in a better ROI. But it's definitely an opportunity. It's just going to take a little time to really grow in the U.S.,

Understood. Thanks, guys. I'll hop back into the queue.

Your next question comes from the line of Mark Riddick with Sedoti. Your line is open.

Hi, good afternoon. Hello. Hi there.

So I wanted to touch on one of the things that has come up on the commentary around brand loyalty is I wanted to touch a little bit on those campaigns and that mix of the luxury aspirational versus kind of the, you know, the current consumer realities. I was wondering if you could touch a little bit more about that, maybe if you're seeing different things in different locales. And then also maybe if you could give maybe a little bit of a historical background as to what you've seen in the past as to, you know, the types of offerings that would resonate maybe more so with, you know, with projected economic realities.

Yeah. So it's one of those, and we've seen this with their mouse before we've seen with this, the brand loyalty people adjust what they're going to spend based upon the economy, recession, inflation, whatever the case may be. So with us, we do programs nine to 12 months in advance is when we negotiate, we start bringing in the inventory. But if you come into an environment like we're in now, we've tried to run a camping program in Germany. It didn't go over. It didn't work. So the success rates were very poor. We need to be more nimble so we can adjust the offering. One of the things we talked about is going digital or we can adjust it to things for the house, entertainment, things that people are staying in more, they're trying to spend less. So going and spending in the store to try to get camping equipment is just not overly germane to them. So one of the things we need to do is find a way to be more nimble, change the way we can source it, go more local, be able to adjust the program. And that's where digital really comes into it, the ability to adjust the program on the fly to make sure we have the right program in market at the right time. And that's where we've seen our success rates hurt us this year is where the product no longer resonated with the consumer because the market condition had changed.

Got it. That's very helpful. Thank you.

And then maybe you could touch a little bit on the, as you, and I appreciate only being in the sea for about 100 days to take over at air miles. And I sort of can understand having sort of hit the ground running immediately. But I was sort of curious as to maybe if you could touch a little bit on how we should think about the, maybe the historical sales cycle and the process and how that might maybe be a little different in a recessionary environment or anything that might change what that historical sales cycle might look like.

Hey, Mark. Sean here. I kind of referenced this a little bit earlier. I mean, part of – and I'm 100 days in, but I spent three years at AirMiles previously, so I like to think I have a running start here – And what I've seen historically is what I call barriers to entry in terms of onboarding with air miles. And those can take the form of, you know, heart surgery on a point of sale system with a retailer and the integration effort to those. It just takes some time. I think what I'm seeing here and what you see in the early days of card link offers and shops is a way to bypass some of that integration effort, the investment on both sides to get to market quicker to prove outcomes for our clients and sponsors on collector engagement. And so the sales cycle as such should be shorter, right, because we're not having to do those big technology implementations. And I said earlier, there may be times when we're up for that, but what I see is getting more brands and quicker speed to market to prove out the engagement, to give our collectors more choice, right? And then we can determine the best way to move forward. But over the last 10 years, there's been a lot of evolution in terms of digital loyalty and how these programs work. And so we're just going to have to follow the trend. And as you see, we're making investments in the mobile and digital experience to drive engagement because that's absolutely key.

And that's a perfect way to lead into what my next question is going to be is, are there any areas that you've sort of, you know, touched on thus far that you're encouraged by as far as boosting consumer engagement? Or are there any areas that you think might take a little longer to show the benefits of greater consumer activity?

Yeah, yeah. No, we placed our bets in the right space in terms of the investments we're making in the digital experience and the mobile app absolutely has to be the daily hub for collector engagement. The thing I'm always impressed by coming back to Air Miles is just the depth and breadth of brands that are in the program. I think we have to do a better job of telling our collectors about all the brands that are in the program. I referenced this stat in my remarks around You know, 80% of Canadians actually have three or more earning sponsors within six miles of their home, and that's without the grocer in the program. And so, you know, where I see immediate opportunity beyond the sort of capital investment we're making is our speed to market from a marketing perspective. One of the first things, you know, I came in is deployed the agile marketing methodology to get campaigns and promotions for our sponsors in the market because, again, The truth is we've become an inflexible tool in their toolkit, and the digital marketing toolkit has expanded, and we need to be competitive. And so there's kind of, I think, things in the marketing world, automation, personalization, and scale that are going to help drive awareness of those brands and relevancy of those brands to each collector in a more personalized way that we can move on fast, and we have moved on fast in my first 100 days here.

Thank you very much.

There are no further questions at this time. I would now like to turn the call back over to the presenters for final remarks.

We appreciate you taking the time today to listen to our story, understand where we're taking this business. We do think we're on the right track. We think the investments we're going to make are going to really pay off over a 12- to 8-month period. The focus will be on ROI. We're going to look at brand loyalty, how can we transition the model as we talked about, drive the ROI in that business. Sean is doing a good job getting replacement sponsors within the Air Miles program, so we think we're on the right track. So, again, thank you for joining us today, and we'll talk to you later. Bye.

Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect.