LOYALTY VENTURES INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion should be read in conjunction with the unaudited condensed consolidated and combined financial statements and accompanying notes included in this Quarterly Report and the consolidated and combined financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2021filed with the Security and Exchange Commissionor SECONDon February 28, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, anticipated or expected in these forward-looking statements due to a variety of factors, including, but not limited to, those discussed below and elsewhere in this Quarterly Report on Form 10-Q. See “Caution Regarding Forward-Looking Statements” and “Risk Factors” in this Quarterly Report on Form 10-Q, and “Risk Factors” in Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K filed with the SECOND on
February 28, 2022.

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On November 5, 2021our former Parent has made the spin-off of his LoyaltyOne
segment, or separation, comprising the Canadian AIR MILES® Reward Program and the BrandLoyalty business, into an independent, publicly traded company, Loyalty Ventures Inc. (“Loyalty companies,” “we” or “our”).

Before the Separation and for the three months ended March 31, 2021the unaudited combined financial statements reflected the financial position, results of operations and cash flows derived from the consolidated financial statements and accounting records of the former parent company in accordance with generally accepted accounting principles in United States, or GAAP, and have been prepared on an “excluded” basis. The combined financial statements also include allocations for certain general and administrative expenses of the former parent company. These allocations relate to information technology, finance, accounting, tax services, human resources and other functional support and have been determined based on management’s estimates of the number of employees and costs. non-employees associated with the use of these features by us. we were assigned $3.7 million for the three months ended March 31, 2021, for those business expenses, which have been included in general and administrative expenses in the Combined Statement of Income. Former parent long-term debt and related interest expense has not been allocated for the three months ended


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March 31, 2021as Loyalty companies was not the legal debtor of this debt. The combined financial statements for the three months ended March 31, 2021, do not necessarily reflect what our financial condition, results of operations and cash flows would have been had we operated as an independent, publicly traded company. Financial statements for the three months ended March 31, 2022represent the unaudited consolidated financial statements of Loyalty companies.


Loyalty companies is a leading provider of data-driven consumer loyalty technology solutions. Our solutions focus on helping partners achieve their strategic and financial goals, from increasing consumer basket size, customer traffic and frequency, and digital reach to improving reporting and program analysis. We help financial service providers, retailers and other consumer-facing businesses create and grow customer loyalty across multiple touchpoints, from traditional to digital, mobile and emerging technologies. We manage our business in two segments, the AIR MILES® Reward Program and BrandLoyalty.

The AIR MILES Reward Program functions as a full-service coalition loyalty program for our Sponsors. We provide marketing, customer service, rewards and redemption management for our sponsors. Recently, the AIR MILES Reward Program made a series of program enhancements as part of its commitment to provide collectors with an enhanced loyalty program that offers more choice, flexibility and value that will continue throughout 2022. The increased value proposition for our AIR MILES MILES reward miles will impact our redemption revenue as the cost of redemptions is deducted from redemption revenue in accordance with ASC 606, Revenue from Contracts with Customers. We saw a 43% increase in redemptions for the three months ended March 31, 2022 compared to the same period of the previous year, due to the rebound in travel and the launch of our new travel platform which offers more choices for collectors. However, redemption revenue from our AIR MILES reward program has declined due to our investments providing greater value to the collector. AIR MILES reward miles issued decreased by 4% year-over-year due to lower promotional activity from our food partners and the departure of some partners in the first quarter of 2021, which impacted on the current show compared to the previous year.

BrandLoyalty is a leading global provider of campaign-based loyalty solutions for grocers and other high-frequency retailers. Revenues are strongly influenced by the number, type and timing of programs in the market, which can vary significantly from year to year. In 2021, we experienced pressures in our supply chain due to tight transportation capacity, labor shortages associated with COVID-19 and the impact of continued high demand. In response to these supply chain pressures, we have taken steps to build capacity and increase our supply chain resources. However, we expect these pressures to continue throughout 2022. The invasion of Ukraine by Russia and the sanctions imposed in response to this conflict have increased global economic and political uncertainty. As announced on March 14, 2022we have taken steps to suspend our activities Russia, but will honor our commitments to ongoing programs with Russian food chain customers in accordance with contractual obligations. In addition, we do not plan to offer new loyalty campaigns in Russia for the moment. The vast majority of the products we use for our campaign-based loyalty solutions in Russian grocery stores come from abroad, and none of the rewards for loyalty campaigns outside of Russia come from Russian suppliers. For the full year 2022, we expect our decision to suspend loyalty campaigns for Russian grocery chains to result in a revenue loss of approximately $16 million (15 million euros). While Russia does not constitute a material part of our business, a significant escalation in the current scope of the conflict or related expansion of economic disruption to any part of the whole or global economy could further disrupt our supply chain, expand inflationary costs and have a material adverse effect on our results of operations.

Although we expect the impacts of COVID-19 on our business to moderate, there are still uncertainties around the pandemic, its effect on labor or other macroeconomic factors, severity and duration. the pandemic, the continued availability and effectiveness of vaccines and the measures taken. by government authorities, including restrictions, laws or regulations, and other third parties in response to the pandemic. We continue to actively monitor the impact of COVID-19 on all aspects of our business.



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