Welcome Building Business Acumen

How much do you know about Epsilon and ADS Corporation’s

Key Success Measures?(or Key Performance Indicators

(KPIs))

Let’s find out!

Important Questions

1 - How much Cash was on hand? $______ $______

2 - How much Cash was generated by

Operating Activities? $______ $______

3 - What was our Total Revenues? $______ $______

4 - What was our Net Income? $______ $______

5 - What was our EBITDA Margin? ______% ______%

6 - What was our Net Margin? ______% ______%

7 – What was our Return on Assets? ______% ______%

8 - How much did Total Revenue change YOY? ______% _______%

9 - How much did EBITDA change YOY? ______% _______%

10 - How much did Net Income change YOY? ______% _______%

For fiscal year 2010: Epsilon ADS

Pop Quiz

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Understand the 10 key performance measures that are important to Epsilon, ADS and the Executive Team.

List and describe the five business drivers all successful businesses must focus on.

Teach specific components of ADS financial statements.

Better articulate company performance & strategy.

Create a personal action plan that can positively impact personal performance and company results.

Learning Objectives

3

Acumen Means?

When Gretzky’s Dad was asked by a reporter,

“What makes your son so great?”

“ He skates to where the puck… is going to be.”

(Hockey Acumen!)

He responded by saying;

“Wayne doesn’t skate to where the puck is.”

“The Great One”

~Wayne Gretzky~

…the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business.

3

Acumen Means?

Only 5-10% of business start-ups survive past 5 years.

16% of CEOs lose their job every year. Booz Allen Hamilton 5th annual Study

70% of merger and acquisition activity do not live up to expectation. Wall Street Journal 2007

Why do businesses fail?

6

Business can be tough!

Every business must focus on five business drivers.

If they do, they will be successful.

If they don’t, they’ll fail.

Let’s Start a Business!

4

Business Acumen:

Cash is King!

“Cash is more important than your mother." Al Shugart Former Seagate CEO

“Cash is a company’s oxygen supply.”

-Ram Charan

What happens to a company who runs low on cash?What happens to a company who runs low on cash?

Sources of Cash

Can a company have too much Cash?

9

• Earn it •cash from Operation

• Sell Assets•Cash from Investing

• Borrow it•Cash from Financing

Pro: No Cost -Con: Time

Pro: Immediate -Con: Reduces Assets

Pro: Immediate -Con: Cost (Interest)

Cash & Cash Flow

Can a company have too much Cash?

1)More attractive in a buy-out.2)Low return.3)Shareholders don’t like it.4)May make poor decisions.

9

Cash

Companies ought to keep just enough cash to cover their interest, expenses and capital expenditures; plus they should hold a little bit more in case of emergencies.

Investopedia

How much cash should you have?

Cash

8

What is required to grow and maintain the business.

Cash – the bills and coins in the register, petty cash, and cash in the bank. Also includes cash equivalents, like CD’s and other highly liquid investments, that easily convert into cash within 90 days.

Measures

Cash Flow – The cash generation from core business activities calculated from the difference between the cash that flows into and out of the business in a given period of time (month, quarter, annual)

Definition

Definition: Cash

(In Millions)

Cash ADS

9

Business Measures and Metrics ADS ADS ADS ADS

2010 2009 2008 2007

Total Revenue $2,791 $1,964 $2,025 $1,962

Cash

Cash and Equivalents $139 $213 $157 $219

Cash as % of Revenue 4.98% 10.86% 7.75% 11.17%

Cash from Operating Activities $903 $358 $451 $572

CashBenchmarks

9

(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2010 2010 2010 2010 2010 Total Revenue $2,791 $8,065 $30,242 $861 $1,160 Cash Cash and Equivalents $139 $3,867 $2,498 $86 $207 Cash as % of Revenue 4.98% 47.95% 8.26% 9.99% 17.85%

Cash from Operating Activities $903 $2,691 $9,288 $95 $166

Equation:Cash from operations + Cash from investing + Cash from financing = Net Change in Cash

Purpose:Cash Management

Started Year Ended Year

Net Change in Cash

?

?

Profit

10

What is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%).

EBITDA/EBITDA Margin– Reflects earnings before interest and taxes.

Measures

Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales.

Definition

Definition: Profit

Every business must earn a return that is greater than the cost of using other

people’s money.

-Ram Charan

No Margin, No Mission.

-Stephen R. Covey

Total Revenues (Sales) $100 100%

- Cost of Operations $ 55

- Provisions For Loan loss $ 14

- General & Admin. (G&A) $ 3

=EBITDA $ 28 28%

-Depreciation & Amortization $ 5

= Operating Income $ 23 23%

-Interest & Other Expense $ 11

-Taxes $ 4

= Income From Continuing Operations $ 7 7%

-Losses from discontinued operations $ --

= Net Income $ 7 7%

Two ways to impact PROFIT

Driving ProfitHigh and Low Profit Margins

S&P Average TTM: 11%

Who has much higher profit margins?

Coca Cola 33%Microsoft 30%Google 29%Apple 21%

Why the high margins?

Driving ProfitHigh and Low Profit Margins

S&P Average TTM: 11%

Who has lower profit margins?

ExxonMobil 8%Wal-Mart 3.8%Costco 1.7%

Why the low margins?

2010

EBITDA $ 772,446

+Stock Compensation Expense $ 50,094

+Loss on Sale of Assets $ --

+Merger and Other Costs $ --

= Adjusted EBITDA $ 822,540

Calculating Adjusted EBITDA

Epsilon 613,374 514,272Epsilon 613,374 514,272

ProfitADS

11

(In Millions)

Business Measures and Metrics ADS ADS ADS ADS

2010 2009 2008 2007

Total Revenue $2,791 $1,964 $2,025 $1,962

Net Income $194 $144 $206 $164

Profit

EBITDA Margin 27.67% 27.14% 29.45% 27.94%

Net Margin 6.94% 7.32% 10.19% 8.36%

Epsilon 613,374 514,272Epsilon 613,374 514,272

ProfitEpsilon

11

(In Millions)

Business Measures and Metrics

Epsilon Epsilon Epsilon Epsilon Epsilon

Q2-2011 6 Month 2010 2009 2008

Total Revenue $188 $344 $613 $514 $491

Profit

Adjusted EBITDA Margin 21% 21% 24.83% 24.94% 25.78% Operating Income From Continued Operations Margin

N/A N/A 10.61% 9.62% 8.06%

Profit Benchmarks

S&P 500 Averages: Net Margin = 11%11

(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2010 2010 2010 2010 2010

Total Revenue $2,791 $8,065 $30,242 $861 $1,160

Net Income $194 $2,966 $4,057 $54 $(23)

Profit

EBITDA Margin 27.67% 60.19% 19.72% 13.30% 2.67%

Net Margin 6.94% 36.78% 13.42% 6.23% -2.00%

11

United Parcel Services (UPS) – Avoiding left-hand turns

-92,000 trucks worldwide-Saved over 28,541,472 miles-Saved 3 million gallons of fuel-Reduced insurance premiums-Reduced maintenance frequency and costs

Profit In Action

1. What is the basic equation for each statement?

2. What is the purpose of the statement?

3. What are the key numbers and how are they trending?

4. How can you impact each statement?

Epsilon Financial Statements

Net Profit Margin

Net Income: 193,737

Total Rev. ÷ 2,791,421

= 6.94%

S&P 500 Ave. = 11%

Indicates:Profitability

(G&A)

SG&A:

• Salaries•Sales commissions•Benefits/Severance• Rental Expense• Bad debt charges• Merger integration costs• Professional services: Attorney fees, Accounting

(Revenue = Sales) = Top Line

= Bottom Line

= EBIT

Equation: Revenues- Expenses= Income

EBITDA Margin

Total Revenue: 2,791,421EBITDA: EBIT 629,220

+67,806+75,420 = 772,446

÷ 2,791,421

= 27.67%

P&L

EBITDA margin =27.67%

Net profit margin = 6.94%

= Net income / Diluted # of shares

Statement of Income (P&L)Increase revenue by 100K

100K

55K

55K45K

45K 17K

28K

Statement of Income (P&L)Lower costs by 100K

100K

100K100K

100K37K

63K

Raising Revenues $100M = $28 -or-

Cutting Costs by $100M = $63

What are the implications of each action?

Which is better?

Balancing…

Asset Asset StrengthStrength

Asset Asset UtilizationUtilization

&

i.e. cash, inventory and ratings

Assets (Read from guide book p. 12)

Assets

12

What we have and how well we use what we have.

Return on Assets (ROA)— percent value of Net Income to Total Assets

Measures

Definition

Definition: Assets

13

“In 1912, the Model T for the first time cost less than the prevailing average annual wage in the United States.”

“Ignoring conventional wisdom, Henry Ford continually sacrificed margins to increase sales. In fact, profits per car did fall as he slashed prices from $220 in 1909 to $99 in 1914.”

“But Sales Exploded!”

“Ford demonstrated that a strategic, systematic lowering of prices could boost profits, as net income rose from…

$3 million in 1909 to $25 million in 1914.”~Daniel Gross, Forbes Greatest Business Stories

Example of Profits and Assets

Assets ADS

13

(In Millions)

Business Measures and Metrics ADS ADS ADS ADS

2010 2009 2008 2007

Total Revenue $2,791 $1,964 $2,025 $1,962

Net Income $194 $144 $206 $164

Assets

Return on Assets (ROA) 2.34% 2.75% 4.75% 3.94%

ROA = Net Income = $194 = 2.34% Total Assets $8,272

AssetsBenchmarks

13

(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2010 2010 2010 2010 2010

Total Revenue $2,791 $8,065 $30,242 $861 $1,160

Net Income $194 $2,966 $4,057 $54 $(23)

Assets

Return on Assets (ROA) 2.34% 8.88% 2.76% 5.78% -1.77%

1. What is the basic equation for each statement?

2. What is the purpose of the statement?

3. What are the key numbers and how are they trending?

4. How can you impact each statement?

Epsilon Financial Statements

Becomes Cash < 1 year

Most Liquid

Least Liquid

Due First

Due Last

Due in < 1 year Balance

Equation:Assets = Liabilities + Equity

Indicates:Financial (asset) Strength

Current Ratio = 1.6

Snapshot in time

Growth

14

The ability to increase year over year, quarter over quarter, and/or month over month.

Revenue Growth Measures

EBITDA Growth

“In today’s business world, no growth means lagging behind in a world that grows every day…”

“Investors expect it, employees are energized by it, customers are generally attracted to it and executives are measured by it.”

Definition

Definition: Growth

Net Income Growth

• Best & brightest leave first.

• Productivity goes down.

• Morale goes down.

• Costs are cut, which limits ability to grow, company becomes less profitable.

Studies Show:

It usually takes 4 or 5 years for the company to recover.

15

Business in Rapid Decline…

• Attracts/Retains the best & brightest!

• Productivity goes up = more profit = more cash = more ability to grow!

• Morale is high.

• You have the ability to grow in your career!

Growth gets more time & attention than any of the 5 elements in a public company.

15

Business in Rapid Growth…

GrowthADS

15

(In Millions)

Business Measures and Metrics ADS ADS ADS

2010 2009 2008

Total Revenue $2,791 $1,964 $2,025

Net Income $194 $144 $206

Growth

Revenue Growth 42.10% -3.01% 3.22%

EBITDA Growth 44.91% -10.62% 8.78%

Net Income Growth 34.79% -30.36% 25.81%

GrowthEpsilon

15

(In Millions)

Business Measures and Metrics

Epsilon Epsilon Epsilon Epsilon Epsilon

Q2-2011 6-Months 2010 2009 2008

Total Revenue $188 $344 $613 $514 $491

Profit

Revenue Growth 38% 31% 19.26% 4.68% N/A Adjusted EBITDA Growth 26% 25% 18.8% 1.3% N/A

GrowthBenchmarks

15

(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2010 2010 2010 2010 2010

Total Revenue $2,791 $8,065 $30,242 $861 $1,160

Net Income $194 $2,966 $4,057 $54 $(23)

Growth

Revenue Growth 42.10% 16.70% 13.14% 0.05% 5.53%

EBITDA Growth 44.91% 28.96% 109.93% 1.84% -68.71%

Net Income Growth 34.79% 26.05% 90.47% 12.32% -151.96%

—Remainder of 2011 Outlook— “Maintain double-digit organic revenue growth in 2011. Augmented by the recent acquisitions, total revenue growth is expected to be in the mid-30 percent range compared to 2010. Adjusted EBITDA is expected to trend with revenue growth as

margins are expected to remain consistent with 2010.” Q2 Press Release.

Page 47Q2 Earnings Release

People

16

-The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business..-Employees

Definition

Definition: People

17

What is more important than meeting customer expectations?

Exceeding?Anticipating Customer Needs & Expectations!

“If I would have asked my customer what they wanted, they would have said a faster horse!”

~Henry Ford

People

17

What companies have failed to anticipate customer expectations? What were the results?

– Unprepared for recession and required government bailout

money. Ford secured line of credit prior and retained full ownership.

– decided to move to digital product line. Polaroid did not and is no

longer a serious competitor.

– In 1943, the CEO said the customer need for their product was approximately 5 computers for the entire world.

– Did not move to a digital music player and lost a significant market share to innovative companies like Apple.

• GM/Ford

• Kodak

• IBM

• Sony

Failing to Anticipate customer needs/expectation!

Sell More Fully Integrated End-to-End Marketing Solutions.

“In our Epsilon segment, we have assembled what we believe is the industry’s most comprehensive suite of

targeted and data-driven marketing services, including marketing strategy consulting, data services, database development and management, marketing analytics,

creative design and delivery services such as email communications.”

2010 Year End Press Release

Goal for 2011

Page 51

Epsilon acquiresAspen Marketing

Services

We’ve Invested Over $1.3 Billion To Be The Comprehensive Provider

Page 52

Industry Leadership

Epsilon acquired by

Alliance Data

Frequency Marketing, Inc. integrated into Epsilon

Epsilon acquiredBigfoot Interactive

Epsilon acquired DoubleClick Email

Solutions

Epsilon acquired CPC Associates

Epsilon acquiredAbacus

ICOM integrated into Epsilon

Epsilon acquired the Equifax Direct

Marketing Services Division

Epsilon founded

1969 Oct 2004 Sept 2005 Nov 2005 Apr 2006 Sept 2006 Feb 2007 Jan 2009 Jul 2010 Jun 2011

Marketing DatabaseDesign • Development • Hosting

InteractiveWeb design & hostingReal-time decision support

Loyalty ManagementTechnology platforms & Program Strategy Services

Data Processing ServicesCDI/PDIData HygieneNCOA, PCOA, Merge/Purge

DM AgencyMultichannel CommunicationsMarketing Strategy • Account Management • Creative

Strategy & AnalyticsStrategy Services • Modeling & Analytics

Experiential Marketing

Abacus CooperativeTransactional Cooperative Database• Predictive Modeling

Survey DataSurvey-driven Data • Targeted Marketing Solutions

Compiled dataWeekly New Mover • LifestyleDemographic

InteractiveConsulting Services • Search Engine • Website

Direct MailPrint Production • Letter Shop

Hispanic Marketing

Page 7

• Ranked #1 in Current Offering.

• Leading scores in Database Management Execution and Fulfillment Corporate Strategy Industry Strategy Global Strategy

• Strong Market Presence led by Financials and Employees

Epsilon Ranked #1 in US Database Marketing Service Providers, Q1 2011

Page 54

What are your best practices in anticipating CUSTOMERS needs?

(Capture ideas on page 17)

• Know your business and how you impact results!

• Develop formal processes for listening to customers, both internal and external.

• A quarterly meeting with your boss…ask, how am I doing? What could I do to improve?

629 + 143 = 772

194 8,272

2,791 1,964

629 + 143 = 772 408 + 125 = 533

139

2,791

194

6.94

42.10

34.79

27.672,791

194 2,791

2.34

44.91

144194

903

1

2

3

4

5

6

7

8

9

10

Epsilon Corporation’Key Success Measures

1 ½

0SCORING:

Right answer = 1 pointSomewhat close = ½ point (within: $2B, $2, 2%)

Missed it by a ways = 0 point35

Retaining Content over Time

Time

ReviewApplyTeach

15%

52

1. 7 days: Teach one of the principals learned in class today, to someone in your department.

2. 7 days: Discuss your action items with your manager in the next 7 days.

3. 30 days: Read the first 90 pages of: “What The CEO Wants You to Know“

4. 30 days: Get with your class partner and give an account of your progress on your action item(s).

Start now:

1. Build and practice your new business acumen skills.

2. When making decisions, determine how the outcome will impact Cash, Profit, Assets, Growth, People…

Post Course Action Items:

Understand the 10 key performance measures that are important to Epsilon, ADS and the Executive Team.

List and describe the five business drivers all successful businesses must focus on.

Teach specific components of ADS financial statements.

Better articulate company performance & strategy.

Create a personal action plan that can positively impact personal performance and company results.

Learning Objectives

* nasdaq.com * finance.google.com

* reuters.com * hoovers.com

* yahoo.com * smartmoney.com

Glossary: page 58

Where to Find Information(page 55)

One final thought…

People will work hard for a paycheck,harder for a person,and hardest for a reason.