A loyalty clause in a contract typically requires one party to refrain from engaging in activities that could undermine or compete with the interests of the other party during and sometimes after the contract term. Such clauses are often included in employment or partnership agreements to ensure commitment and allegiance to the company's goals and policies.
We are the global leader in providing loyalty e-commerce and technology solutions to the loyalty industry, connecting loyalty programs, third party brands and end consumers across a global transaction platform. We partner with leading loyalty brands by providing solutions that help make their programs more valuable and engaging, while driving revenue and increasing profitability to the program. We do not manage our own loyalty program, nor do we offer the core technology that operates a loyalty program. Our business is focused on becoming an important strategic partner to the world's most successful loyalty programs by cooperating with them on valuable, private label, ancillary services.
At its simplest, our products and services are designed to benefit loyalty programs by: (1) increasing loyalty program revenues and profitability through the sale of loyalty program currency (such as frequent flyer miles or hotel points) or related travel and loyalty services direct to end consumers or third parties; (2) driving efficient cost management to loyalty program operators by offering non-core redemption options; and (3) enhancing loyalty program member engagement. We now have approximately 75 commercial agreements or integrations with loyalty programs or third parties globally. Most of our commercial contracts enable us to transact directly or indirectly with the loyalty programs' member base to facilitate the sale, redemption or earning of loyalty currency online. Our commercial agreements with loyalty program partners are typically for fixed terms of three to five years. Contracts will generally renew with either an annual evergreen clause or a new contract extension for a set term. Our Loyalty Commerce Platform ("LCP") is the backbone of our product and service offerings. The LCP offers a consistent interface for loyalty programs and third parties, providing broad access to loyalty transaction capabilities, program integration, analytics, reporting, security and real-time fraud services. We have direct integrations with approximately 75 loyalty programs and third parties, including merchants and other technology companies in the loyalty and travel space.
The Loyalty Industry Since their inception, loyalty programs have changed the way consumers interact with their associated brands and how they purchase products and services. Businesses have leveraged loyalty programs to strengthen their brand, enrich relationships with existing customers, and attract and engage new customers. Loyalty programs are seen both as strategic marketing assets of an organization, and as highly profitable cash-generating businesses, particularly in the travel and financial services sectors. As the prominence of loyalty program co-branded credit cards has increased, the size and profitability of the loyalty industry has grown significantly. Many loyalty programs, particularly in the airline and hospitality verticals, have long-term contracts with banks in which they sell significant volumes of points and miles for credit cards on an annual basis to award to customers. Similar commercial arrangements now exist with loyalty programs and retailers who are looking to add loyalty as a consumer incentive to their brand.
Loyalty Currency Retailing The Loyalty Currency Retailing segment provides products and services designed to help loyalty program members unlock the value of their loyalty currency and accelerate the time to a reward. Included in this segment are the buy, gift, transfer, reinstate, accelerator and elite services. These offerings provide loyalty program members the ability to buy loyalty program currency for themselves, as gifts for others, perform a transfer of loyalty currency to another loyalty program member, reinstate previously expired loyalty currency, accelerate earning of loyalty currency in conjunction with other transactions, or to access a higher tier status. Loyalty Currency Retailing services provide high margin revenue to our loyalty program partners while increasing member engagement by unlocking the value of loyalty currency in the members' accounts. We have direct partnerships with over 30 loyalty program partners who leverage at least one of our Loyalty Currency Retailing solutions. All loyalty program partners who leverage our Loyalty Currency Retailing services are within the airline or hospitality verticals. Typically, we find our solutions competing with the internal technology departments of loyalty programs, leading to a "buy vs. build" decision. We have had success in becoming an outsourcing solution to loyalty programs that previously provided these same services in-house. Given this dynamic, the length of our sales cycle for these solutions can be difficult to predict.
Growing the Number of Loyalty Program Partners Throughout most of our history, adding new loyalty program partners has been an important source of growth. Continuing to grow the number of Loyalty Program partners connected to our platform remains a key growth factor and important part of our strategy. As of September 30, 2019, we had commercial relationships with approximately 60 loyalty program partners. Approximately 80% of our current partners are travel based programs. In addition, approximately 80% of our loyalty program partners are based out of either North America or Europe.
WHEREAS, in furtherance of the foregoing, the Board of Directors of ADS has determined that it is in the best interests of ADS and its stockholders to distribute to the holders of the issued and outstanding shares of common stock, par value $0.01 per share, of ADS (the “ADS Common Stock”) as of the Record Date, by means of a pro rata dividend, 81% of the issued and outstanding shares of common stock, par value $0.01 per share, of Loyalty Ventures (the “Loyalty Ventures Common Stock” and 19% of the Loyalty Ventures Common Stock retained by ADS, the “Retained Loyalty Ventures Common Stock, on the basis of one share of Loyalty Ventures Common Stock for every [·] then issued and outstanding share of ADS Common Stock (the “Distribution”);
SEPARATION AND DISTRIBUTION AGREEMENT SEPARATION AND DISTRIBUTION AGREEMENT dated as of November 3, 2021 (as the same may be amended from time to time in accordance with its terms and together with the schedules and exhibits hereto, this “Agreement”) between Alliance Data Systems Corporation, a Delaware corporation (“ADS”), and Loyalty Ventures Inc., a Delaware corporation (“Loyalty Ventures”).
BrandLoyalty: Revenue decreased 16% to $89 million, compared to $106 million in the first quarter of 2021, primarily resulting from the timing of larger programs. Adjusted EBITDA of $236,000 was down year over year due to the lost margin from the decline in revenue but was consistent with expectations.
On December 7, 2021, Loyalty Ventures granted the replacement equity awards pursuant to the terms of the amended Employee Matters Agreement and the Loyalty Ventures 2021 Omnibus Incentive Plan, which was registered with the Securities and Exchange Commission on Form S-8 on November 9, 2021. The amount of such replacement equity awards for each of Loyalty Ventures’ President and Chief Executive Officer, Chief Financial Officer, and each other Named Executive Officer is as listed below.
Loyalty Program Accounting The Sun Country Rewards program provides loyalty awards to program members based on accumulated loyalty points. The Company records a liability for loyalty points earned by passengers under the Sun Country Rewards program using two methods: (1) a liability for points that are earned by passengers on purchases of the Company’s services is established by deferring revenue based on the redemption value, net of breakage; and (2) a liability for points attributed to loyalty points issued to the Company’s Visa card holders is established by deferring a portion of payments received from the Company’s co-branded agreement. The Company’s Sun Country Rewards program allows for the redemption of points to include payment towards air travel, land travel, taxes, and other ancillary purchases. The balance of the Loyalty Program Liabilities fluctuates based on seasonal patterns, which impact the volume of loyalty points awarded through travel or issued to co-branded credit card and other partners (deferral of revenue) and loyalty points redeemed (recognition of revenue). The Company records an estimate for loyalty points breakage in Passenger Revenue upon issuance of the loyalty points. Loyalty points held by co-branded credit card members do not expire. All other loyalty points expire if unused after three years.
Points Earned Through Travel Purchases. Passenger sales that earn Sun Country Rewards provide customers with travel services and loyalty points, which are each considered distinct performance obligations. The Company values each performance obligation on a standalone basis. The Company determines the standalone selling price of loyalty points issued using a redemption value approach which considers the value a passenger will receive upon redemption of the loyalty points. Consideration allocated to loyalty points is deferred, net of estimated breakage, and recognized as Passenger Revenue when both the loyalty points have been redeemed and the passenger travel occurs.
Points Earned through the Co-Branded Credit Card Program. Under the Company's co-branded credit card program, funds received for the marketing of a co-branded credit card and delivery of loyalty points are accounted for as a multiple-deliverable arrangement. The Company determined the arrangement has two distinct performance obligations: loyalty points to be awarded; and use of our brand and access to our customer lists, and certain other advertising and marketing elements (collectively, the marketing performance obligation). Funds received from the co-branded credit card program are allocated to the two performance obligations based on relative standalone selling price. The assumptions used to allocate the funds received are not considered critical to the application of the accounting model for the Company's loyalty program. Consideration allocated to loyalty points is deferred, net of estimated breakage, and recognized as Passenger Revenue when both the loyalty points have been redeemed and the passenger travel occurs. Consideration allocated to the marketing performance obligation is recognized as revenue as the spend occurs and is recorded in Other Revenue.
The Company estimates breakage for loyalty points that are not likely to be redeemed. Loyalty points are combined in one homogenous pool, that includes both air and non-air travel awards, and are not separately identifiable. The estimated breakage rate is primarily based on historical experience of loyalty point redemption activity and other factors that may not be indicative of future trends, such as the COVID-19 pandemic, program changes or modifications that could affect the ultimate usage pattern of loyalty points. The Company continuously monitors its breakage rate assumptions and may adjust its estimated breakage rate for loyalty points in the future. Changes in the Company’s estimated breakage rate assumptions impact revenue recognition prospectively.
A Loyalty Clause in a contract is a provision that obligates one or more parties to remain loyal to the other party or parties for the duration of the agreement. This clause is typically used to prevent actions or behaviors that might harm the interests, reputation, or competitive standing of the other party. It often restricts activities like working for or promoting competitors, making disparaging remarks, or engaging in conflicts of interest.
A Loyalty Clause should be used in any agreement where trust, exclusivity, or alignment of interests is critical to the success of the relationship. It is particularly important in situations where one party’s actions or loyalties could directly impact the other party’s reputation, competitive position, or financial interests.
To draft an effective Loyalty Clause, include the following key elements:
Scope of Loyalty Obligations:
Prohibited Actions:
Duration:
Exceptions:
Enforcement and Remedies:
Geographical and Temporal Limitations (if applicable):
Example
Loyalty Clause:
“The [Employee/Party] agrees to act in good faith and loyalty towards [Company/Party] for the duration of this Agreement. The [Employee/Party] shall not:
- Engage in any activities that compete with the interests of [Company/Party].
- Share or disclose confidential information, trade secrets, or proprietary data with third parties without prior written consent.
- Make any defamatory or disparaging remarks about [Company/Party] to any third party or on any public platform, including social media.
These obligations shall remain in effect during the term of this Agreement and for a period of [timeframe] following its termination.
Any violation of this clause shall entitle [Company/Party] to pursue remedies, including but not limited to termination of this Agreement, recovery of damages, and injunctive relief.”
Loyalty Clauses are commonly found in the following types of contracts:
By including a well-drafted Loyalty Clause, parties can protect their interests, foster trust, and reduce the risk of actions that could harm their business or reputation.
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