Welcome Building Business Acumen

1. Welcome Building Business Acumen

2. Important Questions How much do you know about Epsilon and ADS Corporation’s Key Success Measures? (or Key Performance Indicators (KPIs)) Let’s find out!

3. Pop Quiz For fiscal year 2011: EpsilonADS 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? ______%_______% N/A N/A N/A N/A N/A N/A 35

4. Learning Objectives • Understand the 10 key performance measures that are important to Epsilon, ADS and the Executive Team. • List and describethe five business drivers all successful businesses must focus on. • Teachspecific components of ADS financial statements. • Betterarticulatecompany performance & strategy. • Createa personal action plan that can positively impact personal performance and company results.

5. Acumen Means? …the ability to make good business decisions in a timely manner with an understanding of how the decision should impact the business. 3

6. Business can be tough! • 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

7. Business Acumen: 4 Every business must focus on fivebusinessdrivers. • If they do, they will be successful. • If they don’t, they’ll fail. Let’s Start a Business!

8. Cash & Cash Flow Sources of Cash • 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) Can a company have too much Cash? 9

9. Cash Can a company have too much Cash? More attractive in a buy-out. Low return. Shareholders don’t like it. May make poor decisions. 9

10. How much cash should you have? 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

11. Definition: Cash Definition What is required to grow and maintain the business. Measures 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. Cash 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) 8

12. Cash ADS (In Millions) 9

13. Cash Benchmarks (In Millions) 9

14. Definition: Profit Definition What is left over after you have subtracted expenses. Can be expressed in dollars ($) or percent (%). Measures EBITDA/EBITDA Margin– Reflects earnings before interest and taxes. Profit Net Profit / Net Profit Margin – Profit after all expenses have been subtracted from sales. 10

15. Two ways to impact 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%

16. Driving ProfitHigh and Low Profit Margins S&P Average TTM: 13% Who has much higher profit margins? Coca Cola 33% Microsoft30% Google 29% Apple 21% Why the high margins?

17. Driving ProfitHigh and Low Profit Margins S&P Average TTM: 13% Who has lower profit margins? ExxonMobil8% Wal-Mart 3.8% Costco 1.7% Why the low margins?

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

19. Epsilon 613,374 514,272 Profit ADS (In Millions) 11

20. Epsilon 613,374 514,272 Profit Epsilon (In Millions) 11

21. Profit Benchmarks (In Millions) S&P 500 Averages: Net Margin = 11% 2010 13% 2011 11

22. Assets (Read from guide book p. 12) i.e. cash, inventory and ratings Asset Utilization Asset Strength & Balancing…

23. Definition: Assets Definition Assets What we have and how well we use what we have. Measures Return on Assets (ROA)— percent value of Net Income to Total Assets 12

24. Assets ADS (In Millions) ROA = Net Income = $315 = 3.51% Total Assets $8,980 13

25. Assets Benchmarks (In Millions) 13

26. Definition: Growth Definition The ability to increase year over year, quarter over quarter, and/or month over month. “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.” Growth Measures Revenue Growth EBITDA Growth Net Income Growth 14

27. Business in Rapid Decline… • 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

28. Business in Rapid Growth… • 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

29. Growth ADS (In Millions) 15

30. Growth Epsilon (In Millions) 15

31. Growth Benchmarks (In Millions) 15

32. Q2 Earnings Release

33. Q2 Earnings Release

34. Definition: People Definition -The External Customer, Vendor/Re-seller, or Internal Customer that has the ability to impact the success of the business.. -Employees People 16

35. Goal for 2012 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

36. Industry Leadership We’ve Invested Over $1.3 Billion To Be The Comprehensive Provider Epsilon acquires Aspen Marketing Services ICOM integrated into Epsilon Epsilon acquired Bigfoot Interactive Epsilon acquired CPC Associates Epsilon acquired by Alliance Data 1969 Oct 2004 Sept 2005 Nov 2005 Apr 2006 Sept 2006 Feb 2007 Jan 2009 Jul 2010 Jun 2011 Epsilon acquired the Equifax Direct Marketing Services Division Epsilon acquired DoubleClick Email Solutions Frequency Marketing, Inc. integrated into Epsilon Epsilon acquired Abacus Epsilon founded

37. Epsilon Agency Overview Marketing Database Design • Development • Hosting Digital & Interactive Email Service Provider Web design & hosting Real-time decision support Loyalty Management Technology platforms & Program Strategy Services Data Processing Services CDI/PDI Data Hygiene NCOA, PCOA, M/P Demographics 115 million HH, 225 million individuals with 31 different sources. Financials HH Income, Credit Card Capacity, Financials Stress Indicators, Home Value, Net Worth Lifestyles Self-reported lifestyles & interests from 40 million consumers Market Activity Online and Offline purchase Information, with details RFM data For 60 millions+ HH Triggers Behavioral data w/life event and life stage triggers, + purchase propensity Strategic Consulting & Advanced Analytics Program Strategies, Investment Justification, Customer Segmentation, ROI Analytics, Predictive Modeling & Marketing Mix Modeling Digital Websites, Email & Mobile Campaigns, Social & Word-of-mouth Programs Direct Response Concept to Mailbox Campaigns, Web-to-print Technology & Database Management Consumer Promotions & Events Loyalty & Continuity Programs, Partnerships & Sponsorships, In-Store Marketing, Mobile Tours, Guerilla Marketing & Sampling Events Hispanic Marketing Consumer Promotions, Direct, Digital & Experiential Marketing 37

38. Business Drivers (Page 18) Cash-On hand -Generation Growth -Top Line -Bottom Line Profit -Revenue -Expenses People -Customers -Employees Assets -Strength -Utilization

39. Epsilon Financial Statements • What is the basicequationfor each statement? • What is the purposeof the statement? • What are the keynumbersand how are they trending? • How can you impact each statement? • The Annually Reported Financial Statements • Statement of Income (P&L) • Balance Sheet • Statement of Cash Flows 21

40. Indicates: Profitability Equation: Revenues- Expenses= Income P&L • SG&A: • Salaries • Sales commissions • Benefits/Severance • Rental Expense • Bad debt charges • Merger integration costs • Professional services: • Attorney fees, Accounting = Top Line (Revenue = Sales) (COGS) (G&A) EBITDA Margin Total Revenue: 3,173,287 EBITDA: EBIT 812,680 +70,427 +82,726 = 965,833 ÷ 3,173,287 = 30.44% EBITDA margin =30.44% = EBIT Net profit margin = 9.94% Net Profit Margin Net Income: 315,286 Total Rev. ÷3,173,287 = 9.94% S&P 500 Ave. = 13% = Bottom Line = Net income / Diluted # of shares

41. Increase revenue by 100K Statement of Income (P&L) 100K 57K 57K 43K 43K 17K 26K

42. Statement of Income (P&L) Lower costs by 100K 100K 100K 100K 100K 38K 62K

43. Which is better? Raising Revenues $100M = $26 -or- Cutting Costs by $100M = $62 What are the implications of each action?

44. Indicates: Financial (asset) Strength Equation: Assets = Liabilities + Equity Snapshot in time Most Liquid Becomes Cash < 1 year Least Liquid Current Ratio = 1.71 Due First Due in < 1 year Balance ? Due Last

45. Equation: Cash from operations + Cash from investing + Cash from financing = Net Change in Cash Purpose: Cash Management ? ? Net Change in Cash  Started Year  Ended Year 

46. 216.2 812.7 + 153.1 = 965.8 3,173.3 30.43

47. 1 216.2 2 1,1011.4 3 3,173.3 4 315.3 812.7 + 153.1 = 965.8 3,173.3 5 30.43 3,173.3 315.3 6 9.94 7 8,980.2 315.3 3.51 8 3,173.3 2,791.4 13.68 812.7+153.1=965.8 629.2 + 143.2 = 772.4 9 25.04 10 315.3 62.78 193.7

48. Epsilon Corporation’ Key Success Measures 1 ½ • SCORING: • Right answer = 1 point • Somewhat close = ½ point (within: $2B, $2, 2%) • Missed it by a ways = 0 point 0 35

49. Changing Behavior *Based on a 1993 Brigham Young University Study When a Person Says … Chances of the idea being incorporated into their life is... “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!

50. Where to Find Information (page 55) * nasdaq.com * finance.google.com * reuters.com * hoovers.com * yahoo.com * smartmoney.com Glossary: page 58