Julie Prozeller - FTI Consulting, IR Ed Heffernan - President and CEO Charles Horn - Chief Financial Officer Melisa Miller - President, Retail Credit Services

Jim Kissane - Credit Suisse Sanjay Sakhrani - KBW Darrin Peller - Barclays Dan Perlin - RBC Capital Markets

Thank you, Operator. By now you should have received a copy of the company’s third quarter 2012 earnings release.

If you haven’t please call FTI Consulting at 212-850-5721. On the call today from Alliance Data we have Ed Heffernan, President and Chief Executive Officer; Charles Horn, Chief Financial Officer; and Melisa Miller, President of Retail Credit Services.

Before we begin, I would like to remind you that some of the comments made on today’s call and some of the references to your questions may contain forward-looking statements. These statements are subject to the risks and the uncertainties described in the company’s earnings release and other filings with the SEC.

Alliance Data has no obligation to update the information presented on this call. Also on today’s call are speakers will reference certain non-GAAP financial measures which we believe will provide useful information for investors.

Reconciliation of those measures to GAAP will be posted on the Investor Relations website at www.alliancedata.com. With that, I’d like to turn the call over to Ed Heffernan.

Ed?

Thanks Julie. Why don’t we go ahead and get started.

Hopefully everyone has a the slide that were made available and today as usual we are going to start with the third quarter results and then we’ll move into what our full year outlook seems to be at this point. And then as it has been tradition for us over the last dozen years we will give our initial look see at 2013.

I think overall as we get started as has been the case with us for the last few quarters at least it looks like things are running strongly and therefore, we once again feel comfortable bumping up guidance pretty much across all the metrics even with the headwinds of higher shares flowing in from the converts and the phantoms. So it looks to be like a good run to the end of the year and we’re looking at a very nice jumper for ‘13.

We all know it’s a little bit early to say ‘13 looks like another rock solid year. But we’ll try to give at least a little color as to what the trends are.

Obviously, Charles, the ever popular CFO will be kicking things off. And then for the first time we have Melisa Miller, who is been in-charge of our Private Label Group over the last year and for those of you who have not had the opportunity to meet Melisa.

She has been with us at ADS for going on seven years now and prior to that she spent 22 years at Experian and was the big cheese who ran sales for all of their commercial credit division. So again very, very strong background in the industry and I think quite frankly a big reason for the tremendous performance that we’re seeing out of Private Label this year and I think you’ll find we’re equally excited about the next couple years as well.

So you can look forward to that. And with that, I will turn it over to Charles.

Thanks, Ed. I will first walk you through the consolidated results before we move to the segments.

Overall, another terrific quarter for ADS, an 8% increase in revenue, drove 15% increase in EPS and a 10% increase in core EPS. This was accomplished despite the continuing dampening effect of phantom shares, which had 3.9 million shares to our diluted share count for the quarter.

Excluding the phantom shares from both periods, core EPS was $2.75 for the quarter up and even stronger 16% compared to last year. We beat core EPS guidance for the quarter by $0.16 if we exclude the benefit of the tax reserve release.

In our updated 2012 guidance, you will see that we are flowing through this several performance to our core EPS guidance for the year. In summary, Q3 results were driven by solid performance in Private Label and LoyaltyOne with mix results at Epsilon.

Let’s flip the next page and discuss LoyaltyOne’s results. LoyaltyOne had a solid third quarter with both revenue and adjusted EBITDA of mid single digits when we exclude the unfavorable impact of foreign exchange translation and operating losses in Brazil and India.

Consistent with our expectation, topline growth moderated on a sequential quarter basis due to the decrease in the burn rate to 73% from 78% in the second quarter of 2012. As discussed in last quarter’s earnings call, the burn rate was artificially high during the first half of 2012 due to the introduction of an expiry policy at the end of last year.

The effect of this notification which created four quarter redemption is now waning and burn rates returning to more typical levels. As a reminder, burn rate is calculated as miles redeemed during the quarter divided by miles issued during the quarter.

As discussed before, adjusted EBITDA in the third quarter was at mid-single digits over the same quarter last year when we take away the drag of unfavorable exchange translation in operating losses associated with our international expansion efforts. Importantly though, if we look through to the base airlines AIR MILES reward program, our margins -- EBITDA margins increased slightly over 30% for the quarter.

So your base Canadian business is doing very well. Miles issued were down slightly compared to third quarter of 2011, primarily due to the timing of promotional activity by certain key sponsors.

We believe this is merely a timing issue and the issuance growth will bounce back to mid single-digit range in the fourth quarter. Miles redeemed were up 2% compared to third quarter of 2011, essentially in line with our expectations.

We expect the burn rates for the fourth quarter will drop into the mid-60% range, which will likely cause miles redeemed to be less than the fourth quarter of 2011. A new instant reward program, AIR MILES cash was added to the AIR MILES Reward Program during the first quarter of 2012.

To date, approximately 850,000 collectors have enrolled in the program, which is being offered at five sponsors. We plan to add additional sponsors in categories for the program over time and to increase the number of locations where miles cash redemptions are accepted.

Our original target was to add 10 sponsors in the program by year-end but seven is now more likely number. The time near the rollout is not completely within our control as it requires point of sale programming changes on the part of other sponsors.

To date, miles issues under the program are not material. Now, quick update on dotz.

Nationally, we have seen our total collectors enrolled in the program grow to over 4.5 million at the end of the third quarter, already exceeding our year-end target of $4 million. Our goal is for dotz to enter additional two markets during the fourth quarter ending the year with six total markets and these markets would cover approximately 25% of Brazil’s total population.

Let’s turn to the next page and talk about Epsilon. Epsilon’s overall performance for the quarter was mixed with strong growth in adjusted EBITDA was increased 10%.

On – at this point, revenue decline of 30% for the third quarter of 2012. Our line of business database digital revenue was down 2% due primarily to the previously discussed weakness in healthcare and pharmaceutical vertical.

Data revenue was off 1% as improved performance in compiled data offerings was offset by unexpected softness in our cooperative data offering primarily for the B-to-B vertical. Agency/analytics revenue decreased 5% due to what we believe as a temporary pullback by one of our largest agency clients.

Overall, Epsilon’s results reflect what we expected, a slowdown in topline revenue growth for the back half of 2012. Historically, new wins would cover any vertical or client weaknesses that didn’t happen in the first half of 2012 as we experienced delays in closing pipeline opportunities.

Fortunately, we’ve been able to rectify this situation as a backlog of wins is now double-digits year-over-year building a healthy ramp for 2013 as these new wins on board and drive revenue growth. At the same time, Epsilon’s strong adjusted EBITDA growth coupled with substantial EBITDA margin expansion demonstrates both sound discipline and the impact of Epsilon’s 2012 focus on restructuring and realigning the business around a unified go-to-market strategy that aligns all sales and client services into industry verticals that delivers solutions across all Epsilon areas.

This restructuring has unified the company’s diverse offerings and simplified service delivery in order to maximize benefits to clients as well as the identification and capture growth opportunities within clients, which should benefit us in 2013. With that, I will turn it over to Melisa to talk about Private Label.

Thank you, Charles. Good morning.

Private label strong revenue and EBITDA growth was fueled by large increases in cardholder spending and a number of new timing. For the quarter, revenue increased 17% and adjusted EBITDA net of funding cost increased 21% compared to the third quarter of 2011.

So let’s take a look at some of the fundamentals driving these results. In the area of receivables growth, average credit card receivables increased 26% compared to the third quarter of 2011 while ending credit card receivables increased 32% from September of 2011.

Now, much of this growth we attribute to the success we’ve had signing and on boarding new clients during the year with our notable successes being Pier1, Bon-Ton and Talbot. And we’re seeing that our respective clients are really responding to our marketing and loyalty approach to growing our joint program.

However, even without that new business our core file saw strong growth with average in ending receivables up 14% and 17% respectively. Our cardholder spending remains very, very strong, up 40% from the third quarter of 2011 and excluding the new program, the core growth rate was still a very strong 20%.

So this performance to our signals that the investments we’ve made in customer care and advanced analytics and really our multichannel approach to cardholder communication is driving more trips, more business and more spend for trip. With strong spending and improved retention from our existing cardholders, a number of new partnerships fully backing these credit programs and a strong pipeline of potential new clients, we expect this growth to continue to accelerate well under 2013.

We built a marketing-oriented customized environment and our philosophy of really leveraging all of the data and the possible touch points as a means to promote these programs continues to pay us big dividends in the form of cardholder and loyalty. Portfolio quality continues to improve the principal charge-off rate with 4.3% for Q3 2012, compared to 6% for Q3 2011 and 4.9% for Q2 2012.

So this is an improvement on both the year-over-year basis as well as sequential basis. And the trends are now suggesting 180 to 200 basis point improvement in charge-off rates for the full year 2012 opposite 2011.

Funding rates continue to improve as older tranches of debt mature and are replaced with cheaper new paper. Our cash funding rates for all card-related borrowings which excludes non-cash items was 2.5% in Q3 2012, 120 basis points better than last year.

So overall the outlook for 2012 remains positive with very strong receivables in revenue growth, low principal charge-off rates and improving funding costs, entering into 2013, the outlook remains equally strong supported by a very, very solid pipeline of new prospects. Charles, I’ll turn it back to you.

All right. Thanks Melissa.

We’re flipping to the next page and we’ll talk about liquidity. I’ll start off with the corporate liquidity, which continues to build increasing to $1.7 billion at September 30, 2012.

Cash has increased almost $800 million while available borrowing capacity approximates $900 million. So what we have is basically very substantial war chest.

Net corporate debt was approximately $1.7 billion at September 30, 2012 with our leverage ratio which is defined as corporate debt to adjusted EBITDA of 2.1 times compared to our maximum loans covenant of 3.5 times. At the bank subsidiary level, we have approximately $2.4 billion of available liquidity at September 30, 2012.

Since Q2, we’ve renewed one conduit totaling $300 million commitments at favorable terms and issued $1.2 billion of term asset-backed securities with an average life slightly over six years and a weighted average coupon of about 2.2%. This is the best execution ever for ADS.

Our focus in 2012 has been to take advantage of a robust financing market to lock in long-term fixed rate money. While we give up some current great opportunity by going further out in the curve, we gain long-term certainty and latter maturity dates.

Continuing our dividend trends, our two banks paid $32.5 million in dividends to the ADS parent during the third quarter. We reduced the dividend by $25 million compared to the second quarter of this year, due to the acquisition of approximately $600 million of credit card portfolios, coupled with our desire to maintain strong regulatory capital ratios.

We expect dividends to returns to the mid-$50 million range next quarter. I will now turn it over to Ed to walk you through our updated guidance and/or initial 2013 guidance.

Great. When we turn to the slide titled 2012 full year’s scorecard and this is where we get a chance to sort of step back.

We are in the waning months of the year, and so it shouldn’t be too many surprises or frankly any at all as the rest of the year plays out. And so this gives us an opportunity to step back and say all right, how does the full year shape up, what we’ve been happy about, what has been a disappointment to us and all of this should come together and help easily signal our entry into 2013.

And so let’s start off first with a division-by-division look, and as we talked about - let’s start with Epsilon. Epsilon for the year is going to post very nice topline and EBITDA growth rates in the mid-teens roughly 13 top, 13 bottom, and of which, we are very pleased with one and not pleased with another.

In fact, quite frankly we are disappointed with the organic topline growth rate. We frankly missed the organic target of 7% to 8%.

Looks like, we are going to be coming in more like 3% and that means we were off topline probably about $40 million, that’s as simple as I can make it. Charles talked about a couple of the headwinds that we faced and our biggest discussion point right now, is this something that we need to worry about as we go into ‘13, or is it more of an air pocket or air boiler, whatever you want to call it for 2012.

So topline I would say was disappointing. What was pleasing on the other side was the fact that our bottom line came in right where we wanted it, if not slightly higher.

We expect to do about organic bottom line of about 10%, which is what we had expected. It also means that our margins have increased a hundred basis points above expectations.

So bottom line looks very solid and then really what answers the question is how does the pipeline look? What we found was in the first half of this year, the pipeline and the pipeline is defined very simply as wins that means mean ink on paper plus verbals, getting the verbal nod from a client that’s how we define our commitments.

And in the first half of this year, our commitments were actually running slightly behind last year which gave us some pause, and that also meant that we knew that the back half of this year was going to be soft. It’s pretty simple math.

The really nice news right now is that what we’ve seen over the past few months is that the pipeline has now jumped dramatically, and is now running as Charles mentioned double digits ahead of the pipeline last year. So our wins in verbals are up double digit versus where they were last year, which means it looks like this was in fact more of an air pocket for a couple of quarters that will play out in Q3 and Q4.

And then we should come back, based on the pipeline assigned deals very nicely for ‘13. So again it’s a tale of some disappointment that we are seeing in topline Q3, Q4.

It looks like that was an air pocket based on the wins in pipelines and as a result, we do feel very good about our guidance for Epsilon for next year. But let’s not also forget that from an earnings perspective, Epsilon did deliver double-digit organic earnings growth and 13% we’ll print as our overall earnings numbers.

So a bit of a mixed bag, but as I look forward certainly more positive than negative. LoyaltyOne don’t really have any negatives coming out of that area, results again and this is 100% organic.

We are looking at plus 8, plus 8 which is right where we wanted it to be, maybe a point better than expected. But top and bottom line is striking very nicely to expectations despite incurring additional costs with our accelerated rollout in Brazil.

Basically the Canadian business managed to over perform a bit and offset that additional investment. So very pleased with LoyaltyOne’s results overall and our key metric miles issued.

If just to remind everyone, we’ll make any money unless the points get issued or the miles get issued and we need that to run right around 5%. It’s running around 6%, which is good.

And then also one of the key metrics we track that Charles talked about is what’s called the burn rate. We reserve essentially at 72%, meaning we expect 72% of all the miles that have been issued to eventually be redeemed.

Over the last 20 years I think was somewhere around 50%. So we are quite a bit under our long-term reserve rate, but more importantly we also need to keep track of current trends.

And as Charles mentioned, we had a pull forward based on some new policy changes at the beginning of the year that jumped the burn rate up to 102%, that’s too high. It’s now being drifting down 78% in Q2.

This quarter we are right on top of where we wanted to do for the reserve rate and we think Q4 will be somewhere in the mid-60s. So that’s good news there.

And then finally, something that the we are all eagerly waiting every quarter to see that how the key metric is doing, which is the number of folks signed up. To put it in perspective, Canada over a 20-year period has signed up a 10 million households and that business serves off a $0.25 billion of EBITDA.

In Brazil coming from zero within a year, so we have already jumped to 4 million folks actively engaged in our program. We expect that to go up dramatically again in ‘13, as we enter a couple of very, very large market.

So Brazil is actually running ahead of expectations, which is why we are accelerating the rollout there. So overall those are the first two businesses.

I would say as a general report card, we are pleased with where we stand. Finally obviously the gold star goes to a Private Label.

Results long-term, we’re probably looking at a business that would do somewhere in the mid to high single-digit organic growth. But obviously it has been running at 2 to 3x that this year with revenues up in the mid-teens and earnings or EBITDA up around 20%.

It’s been heck of the year as Melisa talked about the performance obviously, well above expectations. But the one thing that I’d like to call out is the fact that we have never in my 14 years here seen bigger book of business that’s been signed in any given year.

And you are talking about the big ones like Pier1 and Talbot’s and Bon-Ton’s, newer programs like the True Value’s, Blue Nile’s, Premier Designs, Ideal Image, Westgate. We never had a mix since I have been here.

So many large brand name, big programs that are existing combined with very, very exciting, starting from scratch-type programs that we will continue to drive growth over the next two, three years. And in fact, on our very rough measure the 212 vintages what we call it will add close to $1 billion to the existing AR file so almost 20%.

Melisa can talk about the trends that are driving that but clearly what we are seeing our more and more retailers getting excited about the close loop network, the Private Label offers. Again this is all data driven and comes right back to what we do for living, which is how do we takes skew level data and turn it to the merchants’ benefit for their customers that combined with the fact that, there are number of significant programs, where let’s just say folks are less than enthusiastic about their current providers and are looking to come over to us.

And then finally, Melisa and her group being the marketing girls that they are, are driving very significant wallet share gains within the core. The numbers are staggering when you look at the overall market.

I’ll spend a little less time on the credit quality and funding. Obviously things are heading -- have continued to head in the right direction there.

But as we leave 2012 and go in to ‘13, we can’t count on the credit quality or funding rates continuing to improve and so what we’re looking at again is sort of the old school growth of let’s see how the book of business is growing, but overall very, very good year. In summary, if you were to look at the over performance, I think we being raised now every quarter.

This one, of course will be no exception. We see Private Label as driving the over performance for this year.

We see LoyaltyOne very nicely tracking to expectations and that’s after absorbing some additional expenses for Brazil. Brazil is in fact ramping up faster than anticipated.

We were hoping to have about 4 million folks by year end. It looks like we are going to be close to 5, which is great.

And then the mix bag at Epsilon solid bottom line, disappointing topline, but the pipeline having turned very dramatically in the back half suggest that we are heading in the right direction. On sort of the how much more can we confuse folks in terms of phantom shares and warrants, we’ve had very significant price appreciation in the stock, which causes dilutive effect as phantom shares and warrants flow into the share count.

That being said, if you looked at 2011, we had about 4.5 million of these phantom shares that will effectively go away when the converts mature at no cost to us that was 8% of our shares outstanding. Right now, we are looking at right around 9 million of these phantoms for almost 15% of our shares.

So, that’s a heck of a headwind to overcoming and still raise guidance. However, we feel comfortable of course doing both.

And so the net result is significant over performance versus our expectations and once again we are raising guidance. So, let’s turn to 2012 full-year guidance.

We expect revenues. We’re bumping up revenues almost I guess from our initial guidance of about 3.5, we’re bumping it up to 3.6 about $100 million.

That will be about a 13% topline growth rate. If you were to do an apples-to-apples and have the one M&A deal, which was -- has been in for full-year, you would still see roughly 11% year-over-year topline.

So, a very, very strong from an organic growth rate perspective. Core earnings, we expect to be up in the mid-20s.

Again, the fund stuff with the phantoms come into our shares outstanding, a share count has gone up 11%. But overall core EPS, we have taken from initially in $8.30 freezing it to $8.60.

So whether it’s revenue core earnings or core EPS, everything is being bumped up. What I, of course, focus on is, if you were to take the phantoms out since they will be going away how much we really earning on a core EPS perspective and its about $10 a share, which is up 20% year-over-year and that something that I think is pretty exciting.

And so, leave you with 13% top, 26% our core EPS and 20% on economic EPS as we exit this year and move into 2013. So, if you flip the page, let’s talk about and again we know it’s early and there are lot of things that can change.

But as you folks who’ve known us over the years. We have a pretty good view as to what’s going to unfold over the next 12 months or so.

So, once again we feel pretty good throwing out some of our targets and these will be reflected in our budget and therefore what we get paid on. So, from a financial growth perspective based upon again what we are seeing the very strong pickup in sign deals and verbal commitments, Epsilon should snapback pretty nicely to the organic growth that we have targeted, which is about 7% top, 9% on EBITDA and the key initiatives is obviously, let’s translate those inc.

deals and the verbal into revenue and earnings. And we’re off and running there.

The other big initiative is again we believe we are building a very unique model with Epsilon, where it is the classic what we believe is the one throat to choke for the Chief Marketing Officer, the Chief Information Officer of the global brands, who are looking for someone to pull together everything from the creative or digital agency perspective to also have data assets, database assets, analytic capabilities and the ability to distribute the brand message through all sorts of different channels, be it direct mail, point-of-sale, commission based e-mail, mobile, social, targeted display, whatever it maybe and this one-stop shop is what we built. And so now it’s on us to make sure that our client will look to us for all of their needs as opposed to just one or two, and that’s what we’ve been putting together for the past year.

Turning to Loyalty, no one thinks that it can’t keep rolling and so we believe sort of around six top organic and about 8% adjusted EBITDA seems about right. To get there we would also need about two to three new AIR MILES sponsors.

We think those are in very good shape. Renewals look to be running at 100% as usual and this is a very critical year 2013 for the Brazilian program, specifically we will be looking to enter the two big markets down there, Rio and São Paulo, and so that combined with all the markets we’ve entered to date would suggest, we get critical mass as 2013 unfolds, which means hopefully the fun can begin at the end of ‘13 going into ‘14.

Also you won’t see the drag that you had in ‘12 and ‘13. Finally, on the Private Label side, 10% top, 10% EBITDA, again, running slightly ahead of our long-term growth expectations, for that we probably will need about six new start ups to keep the train running in ‘14 and ‘15.

There’s a number of opportunities for new portfolios. The bottom line of all of these is that we don’t believe and we’re not counting on any help from either charge-off improvements or funding rate improvements.

In fact, we baked in a slight drift up to maybe the mid 5% charge-offs from about 5.2% is what we’re going to run for this year, whether or not we’ll see that. It’s still unclear.

Everything looks to be fairly pristine at this point. But we want to emphasize the fact that the growth here is going to be as I mentioned old school growth.

You throw on $1 billion they are, you’re going to get nice growth here. So, the big difference here is that if you were to look at other participants in the card industry, you’re really talking about bank cards and you look at the key metric which is consumer revolving debt, which for years have been growing 7%, topped out at $1 trillion.

And then fell off a cliff for three years in 2009, ‘10 and through three quarters of 2011, and went from $1 trillion down $800 billion and has now flattened out at about $800 billion over the last three quarters, which is good news. But it also means consumers aren’t loading backup and that’s why, I think you’re seeing with big card companies it’s very hard for them to get any type of growth.

Obviously, that is completely irrelevant to us. As you can see in the numbers, our ability to gain growth is driven by retailers who are coming on board because of the data is coming, it increased wallet share at our core clients and its in the abnormally high number of wins that Melisa and her team are getting.

So I would caution anyone to for the most part ignore what you’re seeing out of the key metrics that the big card companies based on the fact that we’re grow on the file 20%, 30%, and so our sandbox looks extremely attractive now and for the next couple of years. All that means is we are going to stick to our long-term model and we put the stake in the ground and again, this is the base case.

So this would be, I don’t want to stay conservative but it’s certainly something we feel incredibly comfortable with 8% organic top, 10% EBITDA and 10% free cash flow growth. This assumes no M&A and no activity on the share buyback front, which for those of you who know us means that it certainly is a fairly conservative view.

So our ‘13 guidance as we move into it on the last page here, you will see revenue of $3.9 billion, adjusted EBITDA $1.3 billion, so 8% and 10%, respectively, for those two metrics. It is I would say four messages that we should deliver.

The first is top and earnings or EBITDA are consistent with our long-term model of 8% and 10%. Also the fact that in this environment of new-new of what our good growth rates, we are running about four times real GDP growth rate from an organic perspective, which we feel is fairly attractive.

This does not include any assumptions about M&A or buybacks, those would be additive. And we did look at where the street was throwing out their numbers and it looks like we’re very consistent on both revenue and EBITDA of 8% and 10%.

So we feel comfortable there. Also is the one area where we probably need to spend a little of time on is the earnings per share which right now we’re putting down as 10% going from $8.60 to $9.50.

I think what some folks need to do as they had a slightly higher number and again, we’re not saying we won’t gradually drift up there as the year unfolds, but it needs to factor in, the fact that the convert doesn’t come off until August, and that the share price we are using is 143 bucks versus 132 for 2012. So some folks may need to revisit their model in terms of their share count outstanding.

I think some have taken a little bit off the number of shares and I think they may want to revisit that. Needless to say, we feel that, probably the more important metric is that we would end the year at 62 million shares, which gets the noise out of there from that first convert, 62 million shares would put us at a run rate of $9.80, which I think is probably what people are thinking about.

So we get a little bit of swap below the line. We know the metrics themselves are very comfortable with what folks are anticipating of 8% and 10% top and EBITDA and then the earnings per share, again we’ve got some timing issues, little bit of swap but once you get through the noise, you’re looking at about 62 million shares, or about $9.80 run rate, and I think that’s probably the key message here.

To sum up, we are providing a base case. We are providing as we always do what I call wiggle room.

So that we have opportunity to make investments if for example there’s another market we want to enter that may require some investments. Second, as Charles mentioned, all day long we will trade-off short-term benefits on funding to lock down seven-year money at 2.5%, 3%.

And if we could do that, we certainly would. And I think what we haven’t factored in here is based on the trends that we’re seeing even if we’re not getting any help from credit quality or funding costs.

My guess is if you’re going to see over performance in ‘13, it will most likely come primarily from other Private Label Group once again. So I guess, overall my guess is at this point with this base case, the earnings per share is that fairly conservatively and as the year lays out, you’ll most likely see this drift up as is our tendency and has been our tendency over the past year.

So overall, we see a very strong 2013. If we can run the business at four times the growth rate of GDP, we’d be very happy and get our EBITDA around 10% and then get our earnings drifting up probably back, profit of 13%.

As the year plays out, I think that would be a very good year for us. We would also based on almost $2 billion of liquidity at corporate, we are looking at M&A activity as always and most likely on a tuck-in basis, we’re not looking at anything huge.

And also we do feel that shares remain very attractive at these levels. So that being said, I finally be quiet and will turn it over to Q&A.

Operator?

Ed, can you give us a sense on what’s behind the temporary slow down at the large client. Why are you confident that business with this client will pick up over the next few quarters?

Mean Epsilon.

At Epsilon, yeah.

Yeah. It was more of -- we had a couple of air balls primarily in healthcare which is a big sector for us.

The pharmaceutical specifically, we had a lot of stuff, the one-off patent, there was less marketing and what, we knew about it. And so what used to be an area growing double-digit basically went backwards.

And so we needed to cover that off. And there was another very large client in the telecom space that for various reasons needed to cut expenses and therefore cut marketing dollars.

That all being said, I think, that’s almost for $40 million which was the shortfall in the topline. We see that stabilizing but frankly we’ve always had these little air pockets in the past and we’ve always had some big wins that would make up for it and for whatever reason in the first part of this year, we didn’t have them.

We just didn’t sign them and obviously that was an area of concern. What we saw and you’ll see releases coming out, I would say very shortly showing that the bounce back has been equally dramatic.

So I don’t know whether people just like to get me all stressed out in the first half of the year and chill me out in the back half. But the wins in the pipeline, the big missing deals that we had in the first half are coming in the second half and that means 13 looks pretty good.

Great. And a question from Melisa, since we have you.

You obviously have a great backlog with all the signings, can you give us the sense on the potential new business pipeline and maybe why erratic. Can you give us a sense in terms of your go-to market strategy and how you differentiate it relative to some of your large competitors?

Thank you.

Sure, Jim. In terms of our pipeline, which we call our strategic stack, so it is, very plan full, very deliberate right now and filled with start-up, startovers and we call them earnaways, rather than takeaways.

So it’s really filled across all of our vertical specialty retail, how good some of the new areas that we’ve been testing into. But I do want to sort of mention that we were never really going to comprise on the standards that we have around, not chasing after every single shiny object, right.

We want to do business with those partners that see us as a growth vehicle for their brand and maybe that’s a good segue into really what sets us apart like we are first and foremost the marketing and loyalty company reported by banks secondarily. So, it’s really -- Ed has talked about previously its ability to leverage and use all of the data that we collect with all the data that our clients collect that helps us create real, meaningful insight that we can improve our wallet share, put more purchases on our card and then finally at the end of the day our clients currently are really seeing the value in incremental sales that we add to their business and they’ve been terrific supporters and references for us as we explore those clients that may be seeking to leave their current provider.

As Ed has previously mentioned some of our prospects, I have a point of view and feel of it Bruce about how they are experienced whether during the great recession and so we hope to change that as we welcome them to our family. So in general, our pipeline for ‘13 is very, very strong.

Our win strategy is the same and that we want to partner with companies that are very, very strong and committed to the program and we are really bullish on 2013.

That’s outstanding. Thanks Melisa.

You guys talked about the strong liquidity position and I was just wondering if Charles, maybe you could just walk us through, kind of, how that liquidity builds over the course of the next year or so. And then, what the uses could be?

One of the issues, I think, I have heard you talk about is the warrants on the converts. Could you just talk about perhaps wanting to buy those back?

Thank you.

Sure. So Sanjay, could you look, where we are right now.

We have $1.7 billion of liquidity. I’ll ask fast forwarded on other 12 or 15 months, you’re going to add $ 700 million plus.

So let’s say you’re in the $2.4 billion to $2.5 billion of liquidity. What they gives is a very good ability to deploy an effective means.

So number one priority would be, is there a good tuck-in acquisition that makes sense that fits our strategy, maybe new vertical and new product offering. Number two, we’d still have plenty of liquidity to address the warrants that make sense.

We would like to cash, settle them if necessary. Number three, if there is the ability to increase our ownership in our JVs that could makes sense, especially down in Brazil.

Our number four, we have left over liquidity, we could pay down some debts but reality is with our leverage ratio being 2.1 x, that really, that’s not a high priority for us. So I think we have the ability to consummate all of the first three and still retain liquidity into our business and that’s really the focus.

Yeah. I think to Charles’ point, if we were to look at, we had talked about building up the war chest which we feel we’re done and it shows that if we’ve got $2.5 billion of early available liquidity and because EBITDA is growing double-digit rate, ratios are dropping like stone.

I would say that we’re going to see deployment of that liquidity would be exactly what Charles said, which is there are a couple of areas from a tuck-in perspective that we’re looking at for $500 million type deal would be ideal for us. We’re pretty good at those things.

Also, we do feel that there may be an opportunity with the warrants to take some action on that front and again trying to split the use of liquidity between both providing a couple additional point of growth over and above organic, at the same time returning it to shareholders via some type of equity repurchase and based on, where I see the future going, we are certainly bullish on that. So, those would be the two areas that you are most likely going to see use of liquidity over the next 12 months.

Okay. And then second question is, I think, Ed, you have mentioned this throughout your speech.

But I mean there is the cost that you are incurring for growing Private Label in 2013. So, the actual jump off amount is higher into 2014, am I thinking about that correct?

Of the reserve sales?

Yes. So, I mean, it’s could grow, you are building reserve that kind of having an adverse impact in 2013 and you will get the full benefit of the growth in 2014, right?

Okay. Yeah.

I mean sorry. Yeah.

Actually, as you’ll see whenever you’re growing, as you know also well, especially when you’re growing in hyper growth mode. You have to set aside reserves based on the growth rate and how much you’re putting on in terms of they are, that does have a dampening effect for sure especially in Q4, albeit temporary but it does have a dampening effect on what flows due to the bottom line and that’s what hyper growth does.

Now, the good news is, I guess, whenever it tends to moderate, hyper growth moderates, you’re going to get the full flow through, which is fine. What we’ve been able to do at this point is and I will turn it over to Charles, is that, our reserve rate, we believe is quite healthy and as a result, we think we are going to be in very good shape on that front.

Exactly. So if you break it down what happen is this year, our reserve to basically stay stable year-over-year because our rate has been coming down.

As we indicated for next year our rate will probably stay the same. So, if you have substantial growth in your ending AR then you are going to flip to reserve built.

So your reserve will probably increase $40 million as much as $50 million next year. Now, the key takeaways that reserve is based on your ending AR not your average AR which is where produces the income.

So that’s a timing effect this time you’re just talking about it, we have rapid growth in your ending AR, your reserve is going to lead with the finance charge comes through and that would be into June ‘14. So, in this initial year of flipping to a steady rate with rapid growth, you are going to get a big one-time build and then you’ll see it start coming to the numbers better in future years.

Got it. Perfect.

And maybe just one last one from Melisa. I mean, when you guys are out there competing on these earn away deals.

I mean, are you seeing a lot of competition out there, because it seems like we are getting entire mixed signals in terms of the some of the key players out there up? And then just, on the charge-off guidance that you guys have for next year.

I mean, are you guys being conservative there in assuming a big step up from where you are right now? Thanks.

Sanjay, with respect to competition, I’ll tell you, from our perspective it is fierce in terms of activity, right. And I think there would be a bit of arrogant to assume that we won’t have to work very, very hard to earn away some these current programs.

And what we are finding just as we take a good deal or pride in our current programs, the legacy our current providers will invest it heavily in the current program. So, they will fight pretty hard to keep them.

What makes us unique though is there is no single provider like Alliance Data, where we can swing all of our data assets not just in retail but by leveraging what Epsilon brings to there as well. And so there is no one provider that is able to strength together personnel assets, data assets and the competencies that we have and that’s really been winning strategy for us in the marketplace.

Our clients want to know that we are singularly focused on helping them build their business. So, we setoff and if our client simply want to approach us as an arbitrage on interchange we may not be that very best partner.

Competition is fierce. However, we believe that there is no one company that can bring to bear all of the assets that we can.

And then in terms of charge-offs for next year. I don’t know that we would tell you that we are being conservative, I think, Sanjay, we are being realistic in that overtime those charge-offs will pick up.

We certainly are not doing anything reckless in terms of how we underwrite, in fact we continue to improve our tools. But overtime, I think we can expect that we’ll get to pre-recession or closer to pre-recession rates.

Yeah. I think to Melisa’s point.

If we can give guidance of very strong double-digit growth out of Melisa shop and that includes having charge-offs rates drift up and I guess passing up, short-term, funding advantages to locked down long-term, albeit more expensive fixed rate money and we are still doing solid double-digit. I think that gives, should give everyone a lot of comfort, and to Melisa’s point and as you know, Sanjay, we don’t know when we are going to go from 5 to our long-term historical 6, 6.5, it maybe two, three years, I don’t know.

Right now we’re not seeing any indication, right, personal bankruptcies even look better. We are not seeing anything out there that suggests that there is any immediate drift upward.

However, we are putting a plan together saying, let’s get there, the old fashion way which is let’s grow.

Perfect. Thank you.

Putting off on the Epsilon segment, you’re calling for 7% revenue growth in Epsilon in ‘13 and that’s probably on easier year-over-year comps. As far as we head into 2013 versus 2012, so can you give us a sense for what you see the segment doing very longer, just longer-term.

I mean is this a segment that should grow at some point again a high, just called 10% range or what is the long-term growth propel really of this segment? And then also can we expect margins in the segment to remain sustainably at these stronger levels, I know reshuffle something last couple of quarters, but can they stay this high as you roll on the new pipeline you’ve talked about going forward?

Yes. So great questions.

I think, by itself and based on the pipeline and based on the history of Epsilon. I think if you are looking at 7%, 8% organic top and 8% to 9% EBITDA.

I think we would say we are comfortable, certainly comfortable using that as a long-term model for Epsilon. The one wildcard in there is that that would assume that Epsilon functions the way it has function for years, which is we win a database deal, we win a digital agency deal, we win a data deal, we win an analytical deal.

And a lot of them involve one or two pieces of Epsilon and not all five. If in fact, the new organizational structure we put in place this year turned into what we believe the vision is, which is the Chief Marketing Officer’s and the Chief Technology Officer’s out there are in fact looking for one throat to choke.

They are going to look for partner that can basically offer everything. And so that changes deals from $5 million wins to $30 million annual wins.

And if we are the go to and we are the only ones out there in the marketplace that cover this everything from they creative all the way through distribution. If we are successful over the next few years of becoming that one go to party to handle all the digital and direct marketing expenditures from the CMO’s then you are going to see a very significant increase in the growth rates of Epsilon.

We are not comfortable tossing that out at this point because we are just really starting it. But if you start seeing deals begin to flow out in RPR releases saying, we are going to be doing everything from creative to data to database distribution then you know we are on the right track.

So it’s still early in the process. We are betting the whole bunch on.

There is that next leg of growth available if it comes through, and right now we are going to stick with sort of the traditional organic growth that we’ve seen. And as we become the one throat to choke, hopefully that will drift up in the coming years.

And Darrin, I think from an EBITDA margin standpoint you get to keep a couple of things in mind. One is the base business that Epsilon has been steadily growing its EBITDA margins.

But as we onboard these new acquisitions, it has little bit of a dampening effect. The second you have to keep in mind is that there’s seasonality involved.

We tend to be a little bit weaker Q1, Q2 with strength in Q3, Q4. So when you look at the Q3, 27% of the EBITDA margins, don’t expect that to continue straight line into the first and second quarter of next year.

Having said that, we are still looking for about 150 basis point increase in mid-25 range next year, and I that think over time, the ability to get it back up 26%, 27%, 28% is there. The timing will be driven by the on boarding of acquisitions.

If we continue the tuck-ins and then the leverage that we expect to get as we fully integrate them.

All right. That’s helpful.

Just Ed, just a follow-up quickly on the grow targets. So Ed, when you saying long-term you are seeing something potentially better.

The 7% number you gave for ‘13, that’s still does really. That’s still really found in just when you are seeing your car in pipeline, but not expecting all these big expansions to more holistic offerings right now.

Is that right?

That is correct.

Okay. All right.

Thanks. Just a question on our overall guidance now for ‘13.

If you look at your 10% growth in core earnings for ‘13, your business segment guidance alone is roughly about 9% when you put them all, all three pieces together. It just seems that that it gives very little of any attribution to the much lower funding costs in the year.

I think we are trending around 20 or 30 basis points better in ‘13 and ‘12 given what you’ve done from a refis standpoint. And while you are saying, I know you are saying the dollar amount of the reserve may increase because the portfolio size has grown so much and I think you said $40 million, Charles.

But when you compare that to more than to the roughly, I think it’s about a $1 billion of receivables growth through 2000 - in 2013 versus ‘12 as well as the fact that I think the ratios should come pretty materially given how consistent and strong delinquencies are or credit’s spend over the past year and really seem to continue to be. Shouldn’t that alone those two variable alone get you materially above just 10% core earnings growth?

I have two…

I know you are generally conservative, but go ahead.

Number one, obviously as Ed talked about before, we always like to keep a little flexibility within our guidance. Number two and this is the key takeaway, when you saw addressing in our press release.

When you onboard a new program, generally it is our performance as well as what our program does that for two to three years under our operation. Number two, you get the dampening effect or basically the accounting for the acquired program as well.

So what that does as you saw in Q3, where you saw the gross yields drop a little bit. If we continue to grow at these higher rates, during the short-term you are going to see depression or some dampening on the gross yield.

And so that’s part of the issue. Now the flip side of it is, again I’ll go back to the reserve build.

If my ending AR is $500 million higher than my average AR, my yield comes off average, my reserve comes of ending. So if I’m not getting an improvement in that charge-off rate then we are going to have a stable reserve rate.

And basically my provision is leading my future revenue stream from that growth. So those are the key takeaways that you should stick in your model in evaluating 2013.

Yeah. I think, Darrin, your point is well taken.

It’s October and we’ll probably have a few more refinements in January. And as you correctly pointed out, we like to offer something that you can take to the bank and then let’s see how things play out during the year.

And if it’s another year like this year, hopefully there will be more good news to bleed out as the year progresses.

Okay. Great, guys.

Thanks a lot.

Okay.

Thanks, guys. So, I have maybe a bit of a more strategic question for you guys.

How do you balance the opportunity that you see in front of you, for these opportunistic private-label portfolios that might come into, might come into review this year given how your liquidity. Despite the fact that that has become a meaningful, a larger growing part of the business but also has a lot of visibility going into the next couple of years as others have pointed out versus opportunities that are going to come into and what has been an underperforming unit in Epsilon.

So, I’m just trying to reconcile how we should be thinking about this capital redeployment. I know you talked about tuck-ins at $400 to $500 million, but with $2.5 billion you clearly have more than that this year then you had less liquidity, starting I think last year.

So, I don’t want to go through the uses of cash but I do want to kind of understand, how you’re thinking of balancing redeployment of that in areas that are more visible versus less visible. Thanks.

Yeah. No, it’s a great question.

It’s very simple. People ask us all the time as you know, Dan, that’s going back many, many years of how big should Private Label be versus the other two.

And frankly, we’re at the point as we’ve always been of - we’re not shy to take advantage of opportunities in the marketplace, and right now this is a golden time for us in Private Label for a number of reasons. And I’ll just stick to the non-controversial one, which is everyone knows data is what it’s all about, and retailers are discovering after all this time that having a closed look network with skew level information is hey, that’s pretty good idea.

So we’re getting a lot of interest there and that is helping to drive along with Melisa’s sales programs much larger wallet share gains that existing clients. The more I guess you would say politically sensitive side of it is that there are number of potential clients who are very unhappy with where they are today, whether it’s in-house or with someone else and we certainly are going to bend over backwards to welcome them into our family.

And so we think this is a fairly unique opportunity for us, which is a 2012, 2013 and probably a 2014 opportunity and we are going to take full advantage of it. And that means that Private Label will continue to grow above historic norms over the next two, three years and that throws up an awful lot of cash and liquidity.

Against that of course, we are seeing Brazil, which will be huge as it continues to school up as Private Label will eventually start moderating, let’s say two, three years from now. Well before then you’ll see Brazil kick in very significantly, let’s say in ‘14 and so that’ll start balancing the ship the other way.

And from an M&A perspective, there are a couple of slots and Epsilon where we can certainly see a couple of tuck-ins that will help also rebalance the ships. So overall that combine, if you look at Brazil, if you look at let say two tuck-ins of $0.5 billion or so in Epsilon over the next couple of years, the growth in both of those businesses and then some liquidity being returned to shareholders.

If you look at all those pieces combined with sort of this unique trend in Private Label, what I think you’ll find is we can maintain a pretty decent balance, it just will be a little bit heavier around the Private Label side for the next 18 months.

Okay. So why I’m hearing this to make sure I get that, there is nothing so big out that is transformative, even if there are some possible deals out there that could follow that camp.

But its not that your strategy is going to be more consistent tuck-in as you said old school growth and not likely to go down the path of these -- and figure what we sad earlier deep shiny objects that you need to chase that are much, much bigger in scope but you could certainly afford. It doesn’t sound like that’s what you are going after.

Okay?

Yeah. Never say never but the [Uber] deal, I would think is -- look we we’ve been around the block enough times that those are tough to do and get right.

We’re pretty darn good with the tuck-ins.

Yeah. Can I just ask Charles the quick question on what he views as the triggers to ultimately get Brazil beyond that kind of 50% ownership so you can kind of bring it back in that we could certainly see that first hand?

I wouldn’t say there are any triggers.

Okay.

You will be able to see on our one-off negotiation basis over time to get to majority ownership.

Okay. So there is nothing that occurring say, in that Brazilian family right now that we call the trigger.

No. I’d stay with what I said which is there will be one-off negotiation that if the opportunity presents itself, we will take advantage of it.

Okay. And there is one little onset if I could ask.

You mentioned in AIR MILES the timing of the rollout is going to be dictated by the point of sale programming changes. Is that just a, kind of, inoculate statement that you’ve turned out or is there actually something that we need to be aware of at the point of sale.

Thanks. I’ll stop now.

No, it’s just matter of some of the big retailers that could utilize the program have to modify their POS which can take time. And so it’s not necessarily within our control.

I think the sponsors wanted, the collectors wanted. It’s a matter of somewhat substantial programming changes that need to be made.

Excellent. Thanks guys.

Okay. I think we’ll probably stop it there and I know everyone has got jobs to do.

So we’re excited as you can tell and hopefully everyone else as well. So we’ll talk to you next time.

Thank you.