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 2010: 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? 3

6. ~Wayne Gretzky~ When Gretzky’s Dad was asked by a reporter, “What makes your son so great?” “The Great One” He responded by saying; “Wayne doesn’t skate to where the puck is.” “ He skates to where the puck… is going to be.” (Hockey Acumen!)

7. 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

8. 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

9. 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!

10. Cash is King! “Cash is a company’s oxygen supply.” -Ram Charan “Cash is more important than your mother."Al Shugart Former Seagate CEO What happens to a company who runs low on cash?

11. 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

12. 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

13. 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

14. 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

15. Cash ADS (In Millions) 9

16. Cash Benchmarks (In Millions) 9

17. 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 

18. 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

19. 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

20. Two ways to impact PROFIT 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%

21. 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?

22. 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?

23. Calculating Adjusted EBITDA 2010 EBITDA $ 772,446 +Stock Compensation Expense $ 50,094 +Loss on Sale of Assets $ -- +Merger and Other Costs $ -- = Adjusted EBITDA$ 822,540

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

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

26. Profit Benchmarks (In Millions) S&P 500 Averages: Net Margin = 11% 11

27. Profit In Action 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 11

28. 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

29. 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) (G&A) EBITDA Margin Total Revenue: 2,791,421 EBITDA: EBIT 629,220 +67,806 +75,420 = 772,446 ÷ 2,791,421 = 27.67% EBITDA margin =27.67% = EBIT Net profit margin = 6.94% Net Profit Margin Net Income: 193,737 Total Rev. ÷ 2,791,421 = 6.94% S&P 500 Ave. = 11% = Bottom Line = Net income / Diluted # of shares

30. Statement of Income (P&L) Increase revenue by 100K 100K 55K 55K 45K 45K 17K 28K

31. Statement of Income (P&L) Lower costs by 100K 100K 100K 100K 100K 37K 63K

32. Which is better? Raising Revenues $100M = $28 -or- Cutting Costs by $100M = $63 What are the implications of each action?

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

34. 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

35. Example of Profits and Assets “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 13

36. Assets ADS (In Millions) ROA = Net Income = $194 = 2.34% Total Assets $8,272 13

37. Assets Benchmarks (In Millions) 13

38. 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

39. Indicates: Financial (asset) Strength Equation: Assets = Liabilities + Equity Snapshot in time Most Liquid Becomes Cash < 1 year Least Liquid Current Ratio = 1.6 Due First Due in < 1 year Balance ? Due Last

40. 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

41. 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

42. 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

43. Growth ADS (In Millions) 15

44. Growth Epsilon (In Millions) 15

45. Growth Benchmarks (In Millions) —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. 15

46. Q2 Earnings Release

47. 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

48. People 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 17

49. Failing to Anticipate customer needs/expectation! 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 17

50. Goal for 2011 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