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

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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 2011: 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

…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:

Sources of Cash

Can a company have too much Cash?

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• 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.

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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 ADS

2011 2010 2009 2008 2007

Total Revenue $3,173 $2,791 $1,964 $2,025 $1,962

Cash

Cash and Equivalents $216 $139 $213 $157 $219

Cash as % of Revenue 6.80% 4.98% 10.86% 7.75% 11.17%

Cash from Operating Activities $1,011 $903 $358 $451 $572

CashBenchmarks

9

(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2011 2011 2011 2011 March 2010

Total Revenue $3,173 $9,188 $32,282 $851 $1,160

Cash

Cash and Equivalents $216 $2,127 $3,514 $87 $207

Cash as % of Revenue 6.80% 23.15% 10.89% 10.22% 17.85%

Cash from Operating Activities$1,011 $3,872 $10,475 N/A $166

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

Total Revenues (Sales) $100 100% - Cost of Operations $ 57 - Provisions For Loan loss $ 10 - General & Admin. (G&A) $ 3=EBITDA $ 30 30%-Depreciation & Amortization $ 5= Operating Income $ 25 23%-Interest & Other Expense $ 9-Taxes $ 6= Income From Continuing Operations $ 10 10%-Losses from discontinued operations $ --= Net Income $ 10 10%

Two ways to impact PROFIT

Driving ProfitHigh and Low Profit Margins

S&P Average TTM: 13%

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: 13%

Who has lower profit margins?

ExxonMobil 8%Wal-Mart 3.8%Costco 1.7%

Why the low margins?

2011EBITDA $ 965.8+Stock Compensation Expense $ 43.5+Loss on Sale of Assets $ --+Merger and Other Costs $ --= Adjusted EBITDA $ 1009.3

Calculating Adjusted EBITDA

Epsilon 613,374 514,272

ProfitADS

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(In Millions)

Business Measures and Metrics

ADS ADS ADS ADS ADS

2011 2010 2009 2008 2007

Total Revenue $3,173 $2,791 $1,964 $2,025 $1,962

Net Income $315 $194 $144 $206 $164

Profit

EBITDA Margin 30.44% 27.67% 27.14% 29.45% 27.94%

Net Margin 9.94% 6.94% 7.32% 10.19% 8.36%

Epsilon 613,374 514,272

ProfitEpsilon

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(In Millions)

Business Measures and Metrics

Epsilon Epsilon Epsilon Epsilon Epsilon

Q4-2011 2011 2010 2009 2008

Total Revenue $255 $847 $613 $514 $491

Profit

Adjusted EBITDA Margin 25.1% 23.07% 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% 2010 13% 201111

(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2011 2011 2011 2011 March2010

Total Revenue $3,173 $9,188 $32,282 $851 $1,160

Net Income $315 $3,650 $4,935 $44 $(23)

Profit

EBITDA Margin 30.44% 62.52% 19.72% 11.37% 2.67%

Net Margin 9.94% 39.73% 16.47% 5.2% -2.00%

Balancing…

Asset Strength

Asset Utilization

&

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

Assets ADS

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(In Millions)

Business Measures and Metrics

ADS ADS ADS ADS ADS

2011 2010 2009 2008 2007

Total Revenue $3,173 $2,791 $1,964 $2,025 $1,962

Net Income $315 $194 $144 $206 $164

Assets

Return on Assets (ROA) 3.51% 2.34% 2.75% 4.75% 3.94%

ROA = Net Income = $315 = 3.51% Total Assets $8,980

AssetsBenchmarks

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(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2011 2011 2011 2011 2010

Total Revenue $3,173 $9,188 $32,282 $851 $1,160

Net Income $315 $3,650 $4,935 $44 $(23)

Assets

Return on Assets (ROA) 3.51% 2.38% 14.2% N/A -1.77%

Growth

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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.

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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.

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Business in Rapid Growth…

GrowthADS

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(In Millions)

Business Measures and Metrics ADS ADS ADS ADS

2011 2010 2009 2008

Total Revenue $3,173 $2,791 $1,964 $2,025

Net Income $315 $194 $144 $206

Growth

Revenue Growth 13.68% 42.10% -3.01% 3.22%

EBITDA Growth 25.04% 44.91% -10.62% 8.78%

Net Income Growth 62.78% 34.79% -30.36% 25.81%

GrowthEpsilon

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(In Millions)

Business Measures and Metrics

Epsilon Epsilon Epsilon Epsilon Epsilon

Q4-2011 2011 2010 2009 2008

Total Revenue $255 $847 $613 $514 $491

Profit

Revenue Growth 41.76% 38.10% 24.83% 24.94% 25.78%

Adjusted EBITDA Growth 28.83% 28.30 10.61% 9.62% 8.06%

GrowthBenchmarks

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(In Millions)

Business Measures and Metrics ADS VISA AMEX Harte-

Hanks, Inc. ACXIOM

2011 2011 2011 2011 March2010

Total Revenue $3,173 $9,188 $32,282 $851 $1,160

Net Income $315 $3,650 $4,935 $44 $(23)

Growth

Revenue Growth 13.68% 13.92% 8.63% -1.14% 5.53%

EBITDA Growth 25.04% 18.34% 16.63% -15.6% -68.71%

Net Income Growth 62.78% 23.06% 21.64% -17.54% -151.96%

Page 32Q2 Earnings Release

Page 33Q2 Earnings Release

People

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

DEFINITION

Definition: People

EPSILON“the focus is very simple. It’s to continue to drive double-digit growth. And second, and this is also critical, is we want to make sure that when we’re dealing with the

Global 1000 that they view Epsilon not as just a provider of digital agency or analytics or distribution or data, but they view Epsilon as the place to go to handle

their entire needs when it comes to this targeted marketing.

And so, much time and effort will be spend on integrating all the different parts of Epsilon in the sales team to make sure that we’re selling no longer a $3 million or $5

million contract, but a $40 million or $50 million contract and that’s the ultimate goal, very similar to the other two parts of the business where it’s all or nothing

with our clients.”

2011 Year End Press Release

Goal for 2012

Page 35

Epsilon acquiresAspen Marketing

Services

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

Page 36

Industry Leadership

Epsilon acquired byAlliance 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

EPSILON AGENCY OVERVIEW

Marketing DatabaseDesign • Development • Hosting

Digital & InteractiveEmail Service ProviderWeb design & hostingReal-time decision support

Loyalty ManagementTechnology platforms & ProgramStrategy Services

Data Processing ServicesCDI/PDIData HygieneNCOA, PCOA, M/P

Demographics115 million HH, 225 million individualswith 31 different sources.

FinancialsHH Income, Credit Card Capacity, Financials Stress Indicators, HomeValue, Net Worth

LifestylesSelf-reported lifestyles & interestsfrom 40 million consumers

Market ActivityOnline and Offline purchaseInformation, with details RFM dataFor 60 millions+ HH

TriggersBehavioral data w/life event and life stage triggers, + purchase propensity

Strategic Consulting & Advanced AnalyticsProgram Strategies, Investment Justification, Customer Segmentation, ROI Analytics, Predictive Modeling & Marketing Mix Modeling 

DigitalWebsites, Email & Mobile Campaigns, Social & Word-of-mouth Programs Direct ResponseConcept to Mailbox Campaigns, Web-to-print Technology & Database Management 

Consumer Promotions

& EventsLoyalty & Continuity Programs, Partnerships & Sponsorships, In-Store Marketing, Mobile Tours, Guerilla Marketing & Sampling Events Hispanic MarketingConsumer Promotions, Direct, Digital & Experiential Marketing

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Business Drivers (Page 18)

Cash -On hand -Generation

Assets -Strength -Utilization

Growth -Top Line -Bottom Line

Profit -Revenue -Expenses

People-Customers-Employees

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?

The Annually Reported Financial Statements• Statement of Income (P&L)• Balance Sheet• Statement of Cash Flows

21

Epsilon Financial Statements

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

P&L

= Net income / Diluted # of shares

(COGS)

EBITDA MarginTotal Revenue: 3,173,287EBITDA: EBIT 812,680

+70,427+82,726 = 965,833

÷ 3,173,287

= 30.44%

Net Profit Margin Net Income: 315,286 Total Rev. ÷ 3,173,287

= 9.94%

S&P 500 Ave. = 13%

EBITDA margin =30.44%

Net profit margin = 9.94%

Statement of Income (P&L)Increase

revenue by 100K

100K

57K

57K43K

43K

17K

26K

Statement of Income (P&L)

100K

100K100K

100K38K

62K

Lower costs by 100K

Raising Revenues $100M = $26 -or-

Cutting Costs by $100M = $62

What are the implications of each action?

Which is better?

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 = 1.71

Snapshot in time

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

?

?

216.2

812.7 + 153.1 = 965.830.43

3,173.3

812.7 + 153.1 = 965.8

315.3 8,980.2

3,173.3 2,791.4

812.7+153.1=965.8 629.2 + 143.2 = 772.4

216.2

3,173.3

315.3

9.94

13.68

62.78

30.433,173.3

315.3 3,173.3

3.51

25.04

193.7315.3

1,1011.4

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 point

35

Chances of the idea being incorporated into their life is... When a Person Says …

*Based on a 1993 Brigham Young University StudyChanging Behavior

“That’s a good idea”… 10%

“I’ll do it!” and commits... 25%

Says when they’ll do it… 40%

Plans how to do it… 50%

Commits to another… 60%

Sets a future specific appointment with the person they committed to...

95%Good Management Technique!

* 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.