UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-40776

Loyalty Ventures Inc.

(Exact name of registrant as specified in its charter)

Delaware	87-1353472
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

8235 Douglas Avenue, Suite 1200

Dallas, Texas 75225

(Address of principal executive offices, including zip code)

(972) 338-5170

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading symbol	Name of Exchange on which registered
Common stock, par value $0.01 per share	LYLT	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ☒    No   ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ☒

As of May 2, 2022, 24,611,546 shares of common stock were outstanding.

LOYALTY VENTURES INC.

INDEX

		Page
Part I	Financial Information	3
Item 1.	Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	3
	Condensed Consolidated and Combined Statements of Income for the three months ended March 31, 2022 and 2021	4
	Condensed Consolidated and Combined Statements of Comprehensive Loss for the three months ended March 31, 2022 and 2021	5
	Condensed Consolidated and Combined Statements of Equity for the three months ended March 31, 2022 and 2021	6
	Condensed Consolidated and Combined Statements of Cash Flows for the three months ended March 31, 2022 and 2021	7
	Notes to Condensed Consolidated and Combined Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31
Part II	Other Information	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signatures		35

2

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

LOYALTY VENTURES INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,		December 31,
	2022		2021
	(in thousands, except per share amounts)
ASSETS
Cash and cash equivalents	$	139,724	$	167,601
Accounts receivable, net, less allowance for doubtful accounts ($3.9 million and $4.7 million at March 31, 2022 and December 31, 2021, respectively)		271,084		288,251
Inventories, net		213,183		188,577
Redemption settlement assets, restricted		699,531		735,131
Other current assets		28,653		28,627
Total current assets		1,352,175		1,408,187
Property and equipment, net		74,563		79,959
Right of use assets - operating		96,459		99,515
Deferred tax asset, net		58,363		58,128
Intangible assets, net		2,729		3,095
Goodwill		639,947		649,958
Other non-current assets		24,739		24,885
Total assets	$	2,248,975	$	2,323,727
LIABILITIES AND EQUITY
Accounts payable	$	81,149	$	103,482
Accrued expenses		136,660		144,997
Deferred revenue		916,679		924,789
Current operating lease liabilities		9,414		10,055
Current debt		50,625		50,625
Other current liabilities		133,527		118,444
Total current liabilities		1,328,054		1,352,392
Deferred revenue		95,443		97,167
Long-term operating lease liabilities		100,422		103,242
Long-term debt		591,714		603,488
Other liabilities		20,676		20,874
Total liabilities		2,136,309		2,177,163
Commitments and contingencies
Common stock, $0.01 par value; authorized, 200,000 shares; issued, 24,612 shares and 24,585 shares at March 31, 2022 and December 31, 2021, respectively		246		246
Additional paid-in-capital		269,847		266,775
Accumulated deficit		(54,365)		(55,383)
Accumulated other comprehensive loss		(103,062)		(65,074)
Total equity		112,666		146,564
Total liabilities and equity	$	2,248,975	$	2,323,727

See accompanying notes to unaudited condensed consolidated and combined financial statements.

3

LOYALTY VENTURES INC.

UNAUDITED CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF INCOME

	Three Months Ended
	March 31,
	2022		2021
	(in thousands, except per share amounts)
Revenues
Redemption, net	$	84,976	$	104,864
Services		63,783		66,223
Other		6,186		5,467
Total revenue		154,945		176,554
Operating expenses
Cost of operations (exclusive of depreciation and amortization disclosed separately below)		127,878		135,846
General and administrative		6,209		3,685
Depreciation and other amortization		9,125		8,595
Amortization of purchased intangibles		288		439
Total operating expenses		143,500		148,565
Operating income		11,445		27,989
Interest expense (income), net		9,052		(69)
Income before income taxes and loss from investment in unconsolidated subsidiary		2,393		28,058
Provision for income taxes		1,375		8,984
Loss from investment in unconsolidated subsidiary – related party, net of tax		—		36
Net income	$	1,018	$	19,038
Net income per share (Note 3):
Basic	$	0.04	$	0.77
Diluted	$	0.04	$	0.77
Weighted average shares (Note 3):
Basic		24,598		24,585
Diluted		24,626		24,585

See accompanying notes to unaudited condensed consolidated and combined financial statements.

4

LOYALTY VENTURES INC.

UNAUDITED CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE LOSS

	Three Months Ended
	March 31,
	2022		2021
	(in thousands)
Net income	$	1,018	$	19,038
Other comprehensive income (loss):
Unrealized loss on securities available-for-sale		(20,801)		(6,400)
Tax benefit		—		—
Unrealized loss on securities available-for-sale, net of tax		(20,801)		(6,400)
Unrealized gain on cash flow hedges		2		1,121
Tax benefit (expense)		34		(204)
Unrealized gain on cash flow hedges, net of tax		36		917
Foreign currency translation adjustments		(17,223)		(29,699)
Other comprehensive loss, net of tax		(37,988)		(35,182)
Total comprehensive loss, net of tax	$	(36,970)	$	(16,144)

See accompanying notes to unaudited condensed consolidated and combined financial statements.

5

LOYALTY VENTURES INC.

UNAUDITED CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF EQUITY

										Accumulated
				Additional				Former		Other
	Common Stock			Paid-In		Accumulated		Parent's Net		Comprehensive		Total
	Shares	Amount		Capital		Deficit		Investment		Loss		Equity
	(in thousands)
Balance as of January 1, 2022	24,585	$	246	$	266,775	$	(55,383)	$	—	$	(65,074)	$	146,564
Net income	—		—		—		1,018		—		—		1,018
Other comprehensive loss	—		—		—		—		—		(37,988)		(37,988)
Net transfers from former Parent for Separation-related transactions	—		—		1,354		—		—		—		1,354
Stock-based compensation	—		—		2,328		—		—		—		2,328
Other	27		—		(610)		—		—		—		(610)
Balance as of March 31, 2022	24,612	$	246	$	269,847	$	(54,365)	$	—	$	(103,062)	$	112,666

										Accumulated
				Additional				Former		Other
	Common Stock			Paid-In		Accumulated		Parent's Net		Comprehensive		Total
	Shares	Amount		Capital		Deficit		Investment		Income (Loss)		Equity
	(in thousands)
Balance as of January 1, 2021	—	$	—	$	—	$	—	$	1,093,920	$	381	$	1,094,301
Net income	—		—		—		—		19,038		—		19,038
Other comprehensive loss	—		—		—		—		—		(35,182)		(35,182)
Change in former Parent’s net investment	—		—		—		—		(119,731)		—		(119,731)
Balance as of March 31, 2021	—	$	—	$	—	$	—	$	993,227	$	(34,801)	$	958,426

See accompanying notes to unaudited condensed consolidated and combined financial statements.

6

LOYALTY VENTURES INC.

UNAUDITED CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

	Three Months Ended
	March 31,
	2022		2021
	(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,018	$	19,038
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		9,413		9,034
Deferred income tax benefit		(1,054)		(478)
Non-cash stock compensation		2,328		1,853
Change in other operating assets and liabilities:
Change in deferred revenue		(20,700)		4,433
Change in accounts receivable		16,800		16,518
Change in accounts payable and accrued expenses		(28,551)		(23,778)
Change in other assets		(25,778)		15,913
Change in other liabilities		14,440		49,402
Other		3,366		4,922
Net cash (used in) provided by operating activities		(28,718)		96,857
CASH FLOWS FROM INVESTING ACTIVITIES:
Change in redemption settlement assets, restricted		(8,324)		(13,109)
Capital expenditures		(3,698)		(4,548)
Distributions from investment in unconsolidated subsidiary – related party		—		795
Net cash used in investing activities		(12,022)		(16,862)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements		1,000		—
Repayments of borrowings		(13,656)		—
Dividends paid to former Parent		—		(120,000)
Net transfers to former Parent		—		(3,514)
Net transfers from former Parent for Separation-related transactions		1,569		—
Other		(579)		—
Net cash used in financing activities		(11,666)		(123,514)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(662)		(1,571)
Change in cash, cash equivalents and restricted cash		(53,068)		(45,090)
Cash, cash equivalents and restricted cash at beginning of year		232,602		337,525
Cash, cash equivalents and restricted cash at end of year	$	179,534	$	292,435
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid	$	8,280	$	92
Income taxes paid, net	$	8,535	$	15,769

See accompanying notes to unaudited condensed consolidated and combined financial statements.

7

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of the Business

On November 5, 2021, Bread Financial Holdings, Inc., previously named Alliance Data Systems Corporation (“former Parent”), completed the spinoff of its LoyaltyOne reportable segment (the “Separation”) into an independent, publicly traded company, Loyalty Ventures Inc. (the “Company” or “Loyalty Ventures”).

Loyalty Ventures provides coalition and campaign-based loyalty solutions through the Canadian AIR MILES^® Reward Program and BrandLoyalty Group B.V. (“BrandLoyalty”). The AIR MILES Reward Program is a full-service outsourced coalition loyalty program for its sponsors who pay a fee per AIR MILES reward mile issued, in return for which the AIR MILES Reward Program provides all marketing, customer service, rewards and redemption management. BrandLoyalty designs, implements, conducts and evaluates innovative and tailor-made loyalty programs for high frequency retailers worldwide. These loyalty programs are designed to generate immediate changes in consumer behavior and are offered across Europe and Asia, as well as around the world.

Basis of Presentation

Prior to the Separation, the Company had operated as part of the former Parent and not as a standalone company. The unaudited condensed combined financial statements for the three months ended March 31, 2021 have been derived from the former Parent’s historical accounting records and are presented on a “carve-out” basis. The unaudited condensed combined financial statements for the three months ended March 31, 2021 also include allocations of certain general and administrative expenses from the former Parent that directly or indirectly benefited Loyalty Ventures’ business. However, amounts recognized by the Company are not necessarily representative of the amounts that would have been reflected in the unaudited condensed combined financial statements had the Company operated independently. The former Parent’s third-party long-term debt and the related interest expense was not allocated for the three months ended March 31, 2021 as the Company was not the legal obligor of such debt. The former Parent’s net investment represents its interest in the recorded net assets of the Company. All significant transactions between the Company and its former Parent have been included in the accompanying unaudited condensed combined financial statements. Transactions with the former Parent as contributions to the carve-out entity or distributions from the carve-out entity are reflected in the accompanying unaudited condensed combined statements of equity as “Change in former Parent’s net investment.”

The unaudited consolidated financial statements for the three months ended March 31, 2022 were based on the reported results of Loyalty Ventures as a standalone company and prepared on a consolidated basis.

All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying unaudited condensed consolidated and combined financial statements.

The Company’s unaudited condensed consolidated and combined financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s unaudited condensed consolidated and combined financial statements and accompanying notes are presented in U.S. Dollars (“USD”), the Company’s reporting currency.

The unaudited condensed consolidated and combined financial statements included herein reflect all adjustments (consisting of normal, recurring adjustments) which are, in the opinion of management, necessary to state fairly the results for the interim periods presented. The results of operations for the interim periods presented are not necessarily

8

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (CONTINUED)

indicative of the operating results to be expected for any subsequent interim period or for the fiscal year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited condensed consolidated and combined financial statements should be read in conjunction with the consolidated and combined financial statements and the notes thereto for the year ended December 31, 2021 included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” This ASU provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this ASU apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022. This ASU is elective and is effective upon issuance for all entities. The Company is evaluating the impact that adoption of ASU 2020-04 will have on its consolidated financial statements.

In October 2021, the FASB issued ASU 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities in accordance with Accounting Standards Codification (“ASC”) 606. ASU 2021-08 is effective for fiscal years beginning after December 15, 2022 and early adoption is permitted. The Company is evaluating the impact that adoption of ASU 2021-08 will have on its consolidated financial statements.

2. REVENUE

The Company’s products and services are reported under two segments—AIR MILES Reward Program and BrandLoyalty, as shown below. The following tables present revenue disaggregated by major source, as well as geographic region based on the location of the subsidiary that generally correlates with the location of the customer:

	AIR MILES
Three Months Ended March 31, 2022	Reward Program		BrandLoyalty		Eliminations		Total
	(in thousands)
Disaggregation of Revenue by Major Source:
Coalition loyalty program	$	62,401	$	—	$	—	$	62,401
Campaign-based loyalty programs		—		87,600		—		87,600
Other		41		1,681		(44)		1,678
Revenue from contracts with customers	$	62,442	$	89,281	$	(44)	$	151,679
Investment income		3,266		—		—		3,266
Total	$	65,708	$	89,281	$	(44)	$	154,945

9

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (CONTINUED)

	AIR MILES
Three Months Ended March 31, 2021	Reward Program		BrandLoyalty		Eliminations		Total
	(in thousands)
Disaggregation of Revenue by Major Source:
Coalition loyalty program	$	66,745	$	—	$	—	$	66,745
Campaign-based loyalty programs		—		106,297		—		106,297
Other		—		—		—		—
Revenue from contracts with customers	$	66,745	$	106,297	$	—	$	173,042
Investment income		3,512		—		—		3,512
Total	$	70,257	$	106,297	$	—	$	176,554

	AIR MILES
Three Months Ended March 31, 2022	Reward Program		BrandLoyalty		Eliminations		Total
	(in thousands)
Disaggregation of Revenue by Geographic Region:
United States	$	—	$	—	$	—	$	—
Canada		65,708		6,020		(44)		71,684
Europe, Middle East and Africa		—		62,689		—		62,689
Asia Pacific		—		18,278		—		18,278
Other		—		2,294		—		2,294
Total	$	65,708	$	89,281	$	(44)	$	154,945

	AIR MILES
Three Months Ended March 31, 2021	Reward Program		BrandLoyalty		Eliminations		Total
	(in thousands)
Disaggregation of Revenue by Geographic Region:
United States	$	—	$	1,045	$	—	$	1,045
Canada		70,257		9,685		—		79,942
Europe, Middle East and Africa		—		79,414		—		79,414
Asia Pacific		—		14,919		—		14,919
Other		—		1,234		—		1,234
Total	$	70,257	$	106,297	$	—	$	176,554

Contract Liabilities

The Company records a contract liability when cash payments are received in advance of its performance, which applies to the service and redemption of an AIR MILES reward mile and the reward products for its campaign-based loyalty programs.

10

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (CONTINUED)

A reconciliation of contract liabilities for the AIR MILES Reward Program is as follows:

	Deferred Revenue
	Service		Redemption		Total
	(in thousands)
Balance at January 1, 2022	$	230,492	$	791,464	$	1,021,956
Cash proceeds		40,352		62,538		102,890
Revenue recognized (1)		(47,220)		(76,573)		(123,793)
Other		—		306		306
Effects of foreign currency translation		2,399		8,364		10,763
Balance at March 31, 2022	$	226,023	$	786,099	$	1,012,122
Amounts recognized in the consolidated balance sheets:
Deferred revenue (current)	$	130,580	$	786,099	$	916,679
Deferred revenue (non-current)	$	95,443	$	—	$	95,443

(1) Reported on a gross basis herein.

The deferred redemption obligation associated with the AIR MILES Reward Program is effectively due on demand from the collector base, thus the timing of revenue recognition is based on the redemption by the collector. Service revenue is amortized over the expected life of a mile, with the deferred revenue balance expected to be recognized into revenue in the amount of $107.1 million in 2022, $77.9 million in 2023, $37.2 million in 2024, and $3.8 million in 2025.

The contract liabilities for BrandLoyalty’s campaign-based loyalty programs are recognized in other current liabilities in the Company’s unaudited condensed consolidated balance sheets. The beginning balance as of January 1, 2022 was $85.4 million and the closing balance as of March 31, 2022 was $100.7 million, with the change due to cash payments received in advance of program performance, offset in part by revenue recognized of approximately $66.7 million during the three months ended March 31, 2022.

3. EARNINGS PER SHARE

A total of 24,585,237 shares of Loyalty Ventures common stock were outstanding at November 5, 2021, the date of the Separation, and this share amount was utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation. For the three months ended March 31, 2021, these shares are treated as issued and outstanding for purposes of calculating historical basic and diluted earnings per share.

For the three months ended March 31, 2022, the calculation of basic and diluted earnings per share is based on the weighted average number of common shares outstanding. The dilutive effect of equity awards of Loyalty Ventures granted subsequent to the Separation is included in the diluted calculation.

11

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (CONTINUED)

The following table sets forth the computation of basic and diluted earnings per share of common stock:

	Three Months Ended
	March 31,
	2022		2021
	(in thousands, except per share amounts)
Numerator:
Net income	$	1,018	$	19,038
Denominator:
Weighted average shares, basic		24,598		24,585
Weighted average effect of dilutive securities:
Net effect of dilutive unvested restricted stock(1)		28		—
Denominator for diluted calculation		24,626		24,585
Basic net income per share:	$	0.04	$	0.77
Diluted net income per share:	$	0.04	$	0.77

(1) For the three months ended March 31, 2022, there were 0.2 million restricted stock units that were anti-dilutive. For the three months ended March 31, 2021, there are no dilutive equity instruments as there were no equity awards of Loyalty Ventures outstanding prior to the Separation.

4. INVENTORIES, NET

Inventories, net of $213.2 million and $188.6 million at March 31, 2022 and December 31, 2021, respectively, primarily consist of finished goods to be utilized as rewards in the Company’s loyalty programs. Inventories are stated at the lower of cost and net realizable value and valued primarily on a first-in-first-out basis. The Company records valuation adjustments to its inventories if the cost of inventory exceeds the amount it expects to realize from the ultimate sale or disposal of the inventory. These estimates are based on management’s judgment regarding future market conditions and an analysis of historical experience.

5. REDEMPTION SETTLEMENT ASSETS, RESTRICTED

Redemption settlement assets consist of restricted cash, mutual funds, and securities available-for-sale and are designated for settling redemptions by collectors of the AIR MILES Reward Program in Canada under certain contractual relationships with sponsors of the AIR MILES Reward Program. The principal components of redemption settlement assets, which are carried at fair value, are as follows:

	March 31,		December 31,
	2022		2021
	Fair Value		Fair Value
	(in thousands)
Restricted cash	$	29,256	$	58,752
Mutual funds		24,955		25,990
Corporate bonds		645,320		650,389
Total	$	699,531	$	735,131

12

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (CONTINUED)

The following table shows the amortized cost, unrealized gains and losses, and fair value of securities available-for-sale as of March 31, 2022 and December 31, 2021, respectively:

	March 31, 2022								December 31, 2021
	Amortized		Unrealized		Unrealized				Amortized		Unrealized		Unrealized
	Cost		Gains		Losses		Fair Value		Cost		Gains		Losses		Fair Value
	(in thousands)
Corporate bonds	$	663,980	$	783	$	(19,443)	$	645,320	$	648,248	$	6,389	$	(4,248)	$	650,389
Total	$	663,980	$	783	$	(19,443)	$	645,320	$	648,248	$	6,389	$	(4,248)	$	650,389

The following tables show the unrealized losses and fair value for those investments that were in an unrealized loss position as of March 31, 2022 and December 31, 2021, respectively, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:

	March 31, 2022
	Less than 12 months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(in thousands)
Corporate bonds	$	347,095	$	(11,395)	$	112,652	$	(8,048)	$	459,747	$	(19,443)
Total	$	347,095	$	(11,395)	$	112,652	$	(8,048)	$	459,747	$	(19,443)

	December 31, 2021
	Less than 12 months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
	(in thousands)
Corporate bonds	$	104,052	$	(1,341)	$	123,382	$	(2,907)	$	227,434	$	(4,248)
Total	$	104,052	$	(1,341)	$	123,382	$	(2,907)	$	227,434	$	(4,248)

The amortized cost and estimated fair value of the securities available-for-sale at March 31, 2022 by contractual maturity are as follows:

	Amortized		Estimated
	Cost		Fair Value
	(in thousands)
Due in one year or less	$	131,903	$	132,384
Due after one year through five years		515,585		497,130
Due after five years through ten years		16,492		15,806
Total	$	663,980	$	645,320

Market values were determined for each individual security in the investment portfolio. The Company recorded losses associated with the change in fair value of mutual funds of $1.3 million and $0.6 million for the three months ended March 31, 2022 and 2021, respectively.

For available-for-sale debt securities in which fair value is less than cost, ASC 326, “Financial Instruments – Credit Losses,” requires that credit-related impairment, if any, is recognized through an allowance for credit losses and adjusted each period for changes in credit risk. The Company typically invests in highly rated securities with low probabilities of default and has the intent and ability to hold the investments until maturity, and the Company performs an assessment each period for credit-related impairment. As of March 31, 2022, the Company does not consider its investments to be impaired.

13

LOYALTY VENTURES INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS – (CONTINUED)

Gains from the sale of investment securities were de minimis for the three months ended March 31, 2022. There were no realized gains or losses from the sale of investment securities for the three months ended March 31, 2021.

6. LEASES

The Company has operating leases for general office properties, warehouses, data centers, customer care centers, automobiles and certain equipment. As of March 31, 2022, the Company’s leases have remaining lease terms of less than 1 year to 12 years, some of which may include renewal options. For leases in which the implicit rate is not readily determinable, the Company uses its incremental borrowing rate as of the lease commencement date to determine the present value of the lease payments. The incremental borrowing rate is based on the Company’s specific rate of interest to borrow on a collateralized basis, over a similar term and in a similar economic environment as the lease.

Leases with an initial term of 12 months or less are not recognized on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Additionally, the Company accounts for lease and nonlease components as a single lease component for its identified asset classes.

The components of lease expense were as follows:

	Three Months Ended
	March 31,
	2022		2021
	(in thousands)
Operating lease cost	$	3,742	$