Good morning, and welcome to the Alliance Data Third Quarter 2014 Earnings Conference Call. At this time, all parties have been placed on a listen-only mode. Following today’s presentation, the floor will be opened for your questions. (Operator Instructions) In order to view the company’s presentation on their website, please remember to turn off the pop-up blocker on your computer. It is now my pleasure to introduce your host, Ms. Julie Prozeller of FTI Consulting. Ma’am, the floor is yours.

Thank you, operator. By now, you should have received a copy of the company’s third quarter 2014 earnings release. If you haven’t, please call FTI Consulting at 212-850-5721. On the call today from Alliance Data, we have Edward Heffernan, President and Chief Executive Officer, Charles Horn, Chief Financial Officer and Melisa Miller, President of Retail Credit Services. Before we begin, I’d like to remind you that some of the comments made on today’s call and some of the responses 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 the call. Also on today’s call, our 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 Edward Heffernan. Ed?

Great. Thanks Julie and welcome everyone to another earnings call and I know everyone has a bunch of company’s reporting. So, we’ll try to move with pace today. Joining me today is of course our always informative Charles Horn and Melisa Miller, who is our President of our Card Group. Charles is going to discuss the operating results, Melisa will do a deep dive on private label and I’ll wrap up with a discussion of our increased ’14 guidance and the initial cut at 2015. So, Charles it's all yours.

Thanks, Ed. Entering 2014 we expected earnings to accelerate as 2014 progress. What we saw was a building back by the business we needed to get in front of. Accordingly we added infrastructure, primarily personnel early in the years to support the growth coming later in the year. For the first-half of 2014 this human investment had a dampening effect to our profitability as we were yet to leverage the increased payroll expense. Now that the new business is ramping, we are realizing solid expense leveraging. For the third quarter, revenue increased 20% to 1.3 billion, driven by double digit organic growth while adjusted EBITDA net increased 15% to 376 million. And this compares to a 6% growth rate for the first half of 2014. This improvement in EBIDTA flow through combined with a 9% decrease in diluted share count drove a 36% increase in EPS and 30% increase in core EPS. We expect to see this trend to continue in the fourth quarter of 2014. A final note and then we can quit talking about it. The convertible notes are gone and the warrants have been settled. The 59.9 million diluted shares outstanding is a clean moving forward. Now that number is before any shares issued as part of the pending Conversant acquisition. Let’s turn to the next slide and talk about LoyaltyOne. LoyaltyOne’s revenue increased 52% to 324 million for the third quarter of 2014, mostly driven by BrandLoyalty, which added $110 million to the top line. AIR MILES revenue was 214 million for the third quarter of 2014 flat with the prior year but up 5% on a constant currency basis. The Canadian dollar was down 4% year-over-year creating a $10 million drag on revenue for the third quarter. Adjusted EBIDTA increased 25% to 78 million for…

Thank you, Charles. Good morning everyone. I am delighted to be your wakeup this morning. Let’s go ahead and turn to slide seven, I am really pleased to report that private label's continued strong revenue and income growth was once again fueled by increases in both card holder spending as well as a number of new signings. For the 11th consecutive quarter, revenue grew by double-digits increasing 17% versus Q3 of last year. The revenue growth outpaced our expense growth by 3% as Charles mentioned further widening the operating efficiencies we began saying in the second quarter. Provision expense increased 26% as we needed to provide for the large increases in receivables. This performance really underscores the importance of making the right upfront investments, even if it upsets the apple cart a bit when it comes to quarterly earnings. Specifically you may recall that we hired nearly 1,000 new associates at the beginning of the year to handle the significant number of new client signings and the expansion within our current brand partners. This caused a great deal of pressure on our first-half performance, but was really essential to getting a number of new programs up and running both on time and with the quality delivery our brands have come to expect from us. Today we see the pay-off, earnings, EBITDA, net of funding cost jumped this quarter to over 18% versus the prior year and tripled the growth during the first-half of this year. So let’s turn now to Slide 8 and discuss some of the fundamentals that are really driving these results. Our receivables growth continued to be driven by a very balanced approach of strong organic growth within our core which we define as our pre-2012 partners, as well as new partners and acquired portfolios. In terms…

Thanks Melisa. Let’s flip over to page 10 and we’ll do a quick update on liquidity. At the corporate level our liquidity increased to 1.4 billion at September 30, 2014 after we issued 600 million of new term notes during the third quarter. Year-to-date we spent about 500 million on the brand loyalty acquisition and a share buyback program. Liquidity at our banks remains strong at $3.7 billion. We continue to take advantage of receptive debt markets to lower current funding rates and lock in longer term fixed rate money. Approximately 78% of our bank borrowings are fixed rates with an average maturity now of about 22 months. No dividends were paid to the ADS period fund during the quarter as we retained capital to banks to support the on-boarding of approximately 600 million and acquired credit card portfolios during the fourth quarter of 2014. We expect dividends to resume to the parent company at the beginning of 2015. Lastly, the buyback program was suspended during the third quarter due to pending Conversant acquisition. Year-to-date, we expensed through an 18 million of our 400 million board authorized program. We remain committed to the buyback program and will look to resume buybacks post-closing of the acquisition. With that, I will turn it over to Edward.

Great. Thanks Charles. I think I’ll just -- before we hit ’14 full year guidance I just wanted to sort of finish up on any final comments on Q3. To me the takeaway is in Q3. It’s pretty hard to find a lot of words on the quarter. In fact I think the big concern that I think people expressed to us for the first six months of this year was all about the upfront loading of 1,000 people that we brought on board and will that eventually payoff in enhanced revenue and earnings in our card business. And clearly we saw today that that’s exactly what did take place. So, moving EBITDA growth even at business from 6% in the first half to 18% in Q3 really demonstrates the benefits of taking a little pain upfront for the big gain going forward. And so I think that’s the big story that it was proven out that that was a good use of our time, energy and investment, and we appreciate those for being patience as this plays out. I would say also in Q3 I think BrandLoyalty again continues to outperform our expectations. As I’ve mentioned before, they did about 55 million all-in in terms of EBITDA last year. They’re going to do close to 100 million this year. That business is absolutely booming over in Europe primarily despite a lot of the macro wins that are out there. In fact, the business is the type of business that will tend to do extremely well in a slowing environment from a macro perspective because it has to do with loyalty program giving value to the consumer at the supermarket. So it actually is almost countercyclical, which is good news. I would say the one data point that frankly I…

Thank you. The floor is now open for your questions [Operator Instructions]. Your first question comes from the line of Sanjay Sakhrani with KBW.

Good morning. I guess first question on AIR MILES, I guess you guys are expecting some pretty strong growth in the fourth quarter. How confident are you guys in terms of issuance? And then if it’s supposed to be that strong in the fourth quarter, why can’t it be stronger next year? Is that just conservatism that you’re baking in?

I’d say there is two answers to that Sanjay, so one is we do expect more promotional activity by some of our larger card sponsors in Q4. The other part of this is we do expect some of the SoBe’s legacy stores get into the program in Q4. We’d hope to do it in Q3, ran a little bit late. And so I do expect to get a little lift in Q4 from that. So then the second part of your question could we get a little upside to 2015, sure, there is a way for some potential for upside.

Okay, I guess and then follow up just two questions on private label. I appreciate you guys talking about that the impact of reserve builds from inorganic growth. But aren’t there additional impacts from growth like goodwill amortization, merchant incentives, et cetera, that also weigh in on results in the first year of operations? And then I guess secondly, Melisa, maybe you could just about because we have you online, how much of your discussion, when you’re winning these deals is around price? I mean how many times are you the lowest price when you win the deal? And then secondly, are you talking to Apple about ways you could partner together? Thanks.

I’ll take this first one Sanjay and I’ll look at it from a core EPS standpoint. You’re right. We were somewhat conservative in what we gave you, the fact we only isolated the provision build. Beyond it when you acquire portfolios particularly late in the year you do get a couple of negative effects. The first one you’re talking about is more your FAS 91. So about fair value in your acquired portfolios, you’re do not getting any revenue streams coming from the acquired file as it starts to turn. The other piece of it is to your point the customer givebacks usually are project credit sales. So in month one and month two following the acquisition of the file you’ll be paying a percentage back minus project credit sales. The AR starts to stick at your second cycle your third cycle so you’ll start getting your revenue in month three and four. There is a timing disconnect there. That obviously is an additional drag on core EPS as well. But what we highlighted was pure the provision build because it’s easiest to calculate.

Good morning Sanjay. I will take the two questions with respect to price value and Apple Pay. We’ll tell you the criteria that we use when we embark on a journey to win a brand is really around first and foremost as the partners see this as a loyalty tool, can we get access to that cherished data that we can then use to create what we would tell you is the biggest element for us which is generating incremental sales. So across all of our brands we’ve done the math a zillion times, we estimate that between 35% to 40% of the sales that we generate are truly incremental to the brand and then we work on what is the deal structure that works for the brand and for us. So that was a long one to answer to, no, price is not the driver. We’ve got some folks that probably wish that would be, but that is not how we win deals. With respect to Apple, yes, we are talking to them about what would be the criteria or what would be involved in making general purpose cards available to be used in this new environment should card members chose to do so.

Okay, great. Thank you. And not private label though?

No, not private label, we currently have no plans to do that Sanjay. We believe the offering that we described presents a very rich experience. And our brands are simply not going to want to have their customer relationships impacted for the sake of tap and go convenience.

Okay, great. Thank you

Your next question comes from the line of Kevin McVeigh with Macquarie.

Thanks. Ed or Charles, it seems like your organic growth rate toward GDP continues to step up on a multiple basis. Is that primarily the private label or is that just all businesses firing on cylinders here?

I think it’s a situation where you got very strong organic growth, pretty much across the business except for AIR MILES. AIR MILES is a bit rough this year. But if you look at BrandLoyalty you’ve got 20% - 30% organic growth, strong high single digit organic growth within Epsilon, pretty much all organic. And then you’re seeing a very high 17%-18% organic growth rate within private label. So the only one not there currently is AIR MILES about 2% growth this year on a constant currency basis. Clearly it’s one where there is a few things going on in the market that’s limiting this but overall I’d say across the board very strong organic growth, just a little bit of softness to their models.

And then with eBay splitting PayPal in two, how are you folks positioned to capture incremental opportunity of that split?

I think it’s too early to tell at this point, we have a partnership with PayPal that seems to be going pretty well. So we’ll continue to ride that and otherwise your guess is as good as mine.

: Structurally it would have no impact.

Your next question comes from the line of Ashish Sabadra with Deutsche Bank.

A quick question on the fiscal year ‘15 revenue growth guidance and maybe a follow up to an earlier question. Basically now you’re guided to more like 12.5%, 13% organic growth which is an acceleration from 10% and with all the vintage receivables that you have signed up over the last two years and going forward. Should we see an uptick in the organic growth going forward?

: Well I think again we don’t want to get too far over our skews here, it’s what we’re looking at again as our model is let’s do organic three times what the market or GDP is, what we are seeing you are correct is that it has accelerated from 3x to more like 4x. And I think a lot of that has to do with just this massive shift in clients' spend away from all the brand builds spend and into the data driven target marketing. And that’s a secular trend over and above what’s going on in the macro-environment and we're the beneficiary of that, and that’s one of the reasons why you’re seeing the pickup. But let’s not get too far over our skews, we could probably say 4x GDP organic for next year but that’s the best as far as we’ll go at this point.

: Everything need to pick upon as the acquired policy late in the year from an acquired policy standpoint until it turns 12 months, that’s considered non-organic or in-organic. So that’s where you’re getting that pick up by doing the simple math at 12% is the acquired we’re seeing in Q3 and Q4 this year.

And just quickly on the EPS guidance, this time you have given a range traditionally you just gave a number. I was just wondering if there is a change in philosophy on your guidance, is it still the whole -- the same conservative guidance to show we expect that going forward?

: We would never say it’s the same conservative guidance. What we always do is, it’s consistent with -- look its October. We haven’t even done Q4 yet but based on what we’re seeing, what we’re saying is the stake in the ground is $14.80 or $15 bucks which we feel very comfortable with. And should things continue to go well as the year plays out we’ll revisit that. But we’re not going to go out there and stretch too far in October and let’s just see how ‘15 plays out. But I think putting the stake in the ground at 20% is a pretty decent starting point.

And just one final question on Conversant acquisition. You talked about and Melisa talked about the synergies between the private label and the Conversant acquisition. I was wondering if you could provide some more colour around cross sell synergies between Conversant and Epsilon. How does that help bridge the gaps that you had in your traditional Epsilon offering and a potential for cross selling Conversant into your Epsilon client base?

: Sure, I mean we talked about it’s interesting that a lot of the inbound interest is coming first from sort of Melisa’s folks but on the overall Epsilon side obviously you have got a few 100 very large clients. And with a lot of those clients today we are the keeper of their transactional information. And it was sort of the -- they trust us with that first party transactional data. That’s exactly the model that Conversant is transitioning towards which is, hey we are the trusted third party keeper of your information. We’re not going to turn around and turn it into a competitive tool against you as someone else might in the digital space. And I think you put those two together then the client should feel very comfortable that we are the right solution as sort of this neutral holder of their sort of most precious information. So you put those together, that's sort of the first step that everyone needs to get comfortable with. And then with that what we did is very simply, this is a build or buy. And with Conversant’s presence in the targeted digital display and also it’s emerging presence in mobile and social, in video those are all going to basically accelerate what Epsilon was building and how the Agility Harmony platform which is primarily permission based email to start with has already jumped off very nicely. So you put all these assets together and you’re going to have a toolbox as far as we’re concerned second to none and frankly we’re going to go out there and arm our clients whether they are card clients, whether they are Epsilon clients, whether they are AIR MILES clients or BrandLoyalty clients with the full suite of products that can hit any channel at any time. And frankly we think it will be an offering second to none. It’s a very precise way of hitting the market which is first party transactional data driven marketing. But it’s our sandbox and it’s what we’re good at. So, we’re trying very hard to get off on a good foot here.

That’s great, congrats on the solid results.

Your next question comes from the line of Georg Mihalos with Credit Suisse.

Thanks guys. Maybe just to start off again on the private label side question for Charles and Melisa, looking at the operating expense line within private labels from pretty stable to last three quarters, certainly the last two. How should we think about that going forward into ’15? And then maybe somewhat related to that the gross yield coming down about 50 or 60 basis points annually, is that a good way to think about it going forward as you grow your portfolio and venture into a cobranded and other things?

Good morning Georg, its Melisa, I’ll take a stab at those and Charles I’d invite you to back me up if I miss anything. With respect to the yield, so what we’re seeing really the areas of the impact of a number of new brands that we’re bringing on, and a little bit of the environment as well. So I think what you’re seeing for what we’ve communicated is about what you could expect. And what we would tell you about operating leverage is we really invested in two key areas. First of all, the people in order to support our new partners but also we can’t ignore the growth that we’ve seen in our current brand partner. So as they execute more programs, as they need greater bandwidth, we can never take our eye off the ball of those partners that have trusted us for 25 years. So, we would tell you that the expense leverage that we’ve seen in particular in Q3 is something that we’ll continue to be focused on, and soon we’ll begin to level that out.

Okay, great. And then maybe shifting gears to the Epsilon business. Charles, is the right way to think about that business, ex the Conversant acquisition, that revenue growth and EBITDA growth should sort of frac in line going forward and probably the upside here in the third quarter was a little bit agencies of sort of a revenue mix shift?

I would say that’s accurate. If we’re looking for single digit growth in revenues and you would have the same expectations for EBITDA. To say it another way, do I expect that the EBITDA margins of 21.5-22 to expand appreciably over the next few years, probably not. There could be some coming through it. I think the best opportunity for us is as we on board Conversant more of a product transaction based revenue stream that’s where you can get more of your flow-through better margin expansion. But with the base Epsilon business having a high element of service, service is people driven very difficult to leverage people, especially when you’re in an inflationary world right now in terms of the cost of these technology employees probably consistent margins for base Epsilon but some improvements coming from the CNVR acquisition.

Great, thanks guys.

Your next question comes from the line of David Togut with Evercore.

Thank you. Good morning. Ed and Charles, you called for $1 billion in free cash flow for 2015 prior to regulatory capital support. Can you update us on capital allocation priorities, particularly with your stock where it is and acquisition opportunities you might have in the pipeline?

Sure, I’ll take a shot at it. I think one of the many use of having a lot of free cash flow is you do have a fair amount of flexibility here. I think our leverage rate, help me out Charles, with the Conversant deal, is still only going to be in the mid-2s. So it’s very modestly leveraged even with that deal itself. So I would think that once we get the Conversant deal behind us that means we’ll have done the BrandLoyalty deal in ’13 and the Conversant deal end of ’14 beginning of ’15. My gut tells me right now we would then probably or most likely, turn our guns back on sort of the buyback approach because especially at these levels I would think certainly there is a good opportunity to do something. I mean this is the time where you want to back up the truck a little bit. So we want to get Conversant done and out of the way. And then my guess is right now ’15 and its likely you will see a big deal from us in ’15 and more likely that you will see more of a capital return approach especially in these markets.

Your final question comes from the line of Tulu Yunus with Nomura Securities.

Thanks for squeezing me in. Just a couple of quick ones, one is just on the acquired files in fourth quarter. Given that we’re getting pretty close to the holiday season, can you just size any risk as far as whether those may not actually convert in 4Q and may actually be a ’15 event, how do you feel about that converting this year?

We’ve been working on these files for a number of months. In fact both BJ's and Meijer’s in particular had working actions for year. So, we are very, very confident these files will convert.

Okay, great. And then just so secondly on the Conversant deal and the opportunity for revenue synergies, I mean it sounds like a big part of that could be the ability to cross sell Dotomi and their CRM services and wrap that around what you guys have with agility and sell that into your private label client base. Now the question is with a lot of your clients -- with your private label clients you already sort of do a lot targeted marketing for them with their private label cards. So what would be the benefit for those clients to actually say okay, yes, maybe a CRM solution like Dotomi makes sense?

Well I think it's a great question. Certainly, we have very rich first party transactional data, but it's only on the private label party. So, you may be talking 30% of what goes on at the retailer with the Conversant solution, the retailer would provide us with a 100% download of their transactional information. And as a result we were getting much broader view of who shops there and what they are purchasing. So, I think what it brings to the table is that it gives you a much -- if you want to call it larger sandbox to play in versus private label. Now will you be able to offer the same type of rewards and programs like that, probably not, that would be a fair private label cardholder that takes precedence. But it gives you a second layer of what I call a birthday cake of the ability to get not just 30% view of the customer activity but more like 90% of the customer activity.

Makes perfect sense. Thank you.

Okay. Well, thank you for all your time and we’ll talk to you next quarter. Bye-bye.