Julie Prozeller - FTI Consulting Edward Heffernan - President and CEO Charles Horn - CFO Melisa Miller - President of Retail Credit Services.

Sanjay Sakhrani - KBW Kevin McVeigh - Macquarie Securities Ashish Sabadra - Deutsche Bank Georg Mihalos - Credit Suisse Tulu Yunus - Nomura Securities.

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 the third quarter of 2014. BrandLoyalty contributed 21 million gross or 13 million net of the non-controlling interest for the quarter.

BrandLoyalty’s EBITDA margin improved 30 basis points to 19% as an improved pricing on program merchandize flowed through to the bottom line. For AIR MILES, adjusted EBITDA was 57 million for the third quarter 2014, down 9% from the prior year and down 4% on a constant currency basis.

Better redemption margins did not completely mitigate the decline in breakage revenue for the third quarter. Adjusted EBITDA margins for AIR MILES remained strong at 27%. AIR MILES reward MILES issued were down 4% compared to the third quarter of 2014.

The decline is primarily due to; number one, the SoBe’s purchase of Safeway which negatively impacted issuance as numerous Safeway stores were closed in order to comply with government legislation.

As legacy SoBe stores rolled into the AIR MILES program, we should see this pressure abate; and number two, less promotional activity by two of our largest sponsors in the third quarter of 2014 compared to the same period last year. And this is largely a timing issue as our responses tend to vary promotional periods between years.

Our expectation is now for about 2% growth in issuances for 2014. AIR MILES redeemed increased 12% compared to the third quarter of 2013 driven by the ongoing success for instant reward program AIR MILES Cash. And just a note so you remember it, redemptions were associated with AIR MILES Cash do not have any impacts to our breakage rate.

We also saw a little bit of increased redemptions related to flight and other travel redemptions. Turning to BrandLoyalty, this European based business continues to expand overseas. Most recently we moved into Canada supporting our AIR MILES plant Safeway Canada is on track to deliver over 30% revenue growth through 2014.

Contributing to the growth rates, we’ve been able to deliver on two way revenue synergies or by both BrandLoyalty and the LoyaltyOne Canadian business had benefited. Looking ahead, we expect a strong fourth quarter driven by promotional activities associated with the holiday season.

Lastly, looking at Dotz for quick update and the Brazilian-coalition loyalty business added another 0.5 million collectors during the third quarter, bringing the total number of enrolled collectors to approximately 13 million. And that was our target for the end of 2014, so we’re ahead of schedule.

Dotz is also continuing to expand its geographical footprint and will be launching in a few additional markets by year end. Let’s flip over to the next page and talk little bit about Epsilon. Epsilon’s revenue increased 6% to 378 million for the third quarter of 2014, once again driven by growth in its technology offerings.

Technology revenue increased 10% year-over-year driven by the ramp up of new clients throughout several verticals and increased digital volumes. Agility Harmony saw over a 20% increase in volumes compared to the third quarter of 2013, the growth attributable to both new clients and expanded programs with existing ones.

As the Harmony program continues to evolve to meet client needs, it will expand on its current capabilities and enrich its multichannel approach to marketing. While we haven’t talked about the pending acquisition yet Conversant's capabilities will immediately beef up Harmony's growing display, mobile, video and social digital channels.

Data offerings reversed last quarter’s slowdown growing 6% compared to the prior year quarter. Growth was fuelled by increased demand in the online space from both large existing clients and several new online ones.

Similar to the new wins in technology, we expect to see this momentum continue through the balance of the year as this new business ramps during the quarter. Agency revenue grew 3% during the third quarter of 2014. Strength within the auto sector was slightly tempered by softness experienced within a few other verticals.

In addition, we are slightly behind on the rollout of two new agency clients, so we didn’t flow through the revenue we expected for the third quarter. However, we expect the revenue growth rate to pick up in the fourth quarter as these two clients start on board. Adjusted EBITDA increased 7% to 84 million for the third quarter of 2014.

EBITDA margins improved by 30 basis points from last year primarily due to a shift in products’ mix toward a higher margin technology offerings. And with that I will turn it over to Melisa to discuss private label..

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 of organic growth, we continue to see credit sales as high as three times that of our grand partners' total sales.

This performance has been and continues to be the result of leveraging rich data for deep insights across multiple delivery channels. And we’re measurable; we saw an increase of tender share north of 175 basis points versus Q3 of 2013. Credit sales were up 23% overall with our core sales growth up 12%.

And we continue to emphasize the core growth because it truly demonstrates our commitment to deliver a consistent value and growth to our long standing relationships. And we would tell you we do this while simultaneously adding new partners fueling our high growth model.

So, when summary this leads to another quarter of average receivables growth north of 20%. For the quarter we saw total growth rate of 22% with organic growth of 20%. And this is against the backdrop of a moderate post-recession growth rate and a low single-digit for total consumer revolving debt.

So not only do we continue to drive value for our legacy partners, but we’ve achieved this growth rate by also increasing our new relationships as well.

You see us deliberately transition in recent years and moving from adding five or so new partners per year, which was giving us roughly $400 million vintage of average receivables and roughly a 10% growth rate, to today where we’re adding around 50 new partners per year translating into about $2 billion in vintage receivables and a 20% or better growth rate.

We expect this receivables growth to continue into Q4 and 2015. We will continue to onboard a number of previously announced partners. We are delighted to welcome Meijer and BJ's Wholesale Club in addition to new partners not yet announced.

Our portfolio quality improved this quarter with a principal charge-off rate of 4% for Q3 a full 30 basis points better than the comparable period in 2013. This rate also compares favourably to the 2Q rate of 4.5% reflecting normal seasonal trends.

Trends are now suggesting that charge-off rates bottomed out although we still expect to see stable loss rates in 2015 due to the mix of our new partners.

Delinquency rates are down year-over-year at 4.4% versus 4.5% this time last year and looking forward, we expect to see delinquencies follow typical seasonal trends of this Q3 level and do not anticipate any pressure on our forecasted losses for the year. So now let’s transition to our outlook for further growth in 2015 and beyond.

By year-end, we will have north of 135 coveted partner programs generating over $10 billion in ending receivables. We believe the total market for this highly customized data intense of white-glove approach is about three times our current state or roughly $30 billion and it's represented by about 400 companies.

So these stats really confirm that our proven track record of 20% plus growth over the last several years still really has tremendous runway.

You’ll see us continue to selectively engage new potential partners most of which neither had a program or abandoned an existing program in the past and when you combine the growth potential of these start-up card loyalty programs with our demonstrated growth across existing partners we would expect to average similar growth rates over the next several years.

You’ll see that roughly three quarters of this growth will come through a combination of tender share growth at our existing long-term partners and from the ramp-up of these new brands and remaining 25% will come from program acquisitions where we transition an existing program from another issuer.

You’ve asked us previously to comment on why partners are choosing us. And we would tell you the answer is still the same. Our partners today are under a tremendous pressure, shoppers are clearly more informed now than they ever have been before and are demanding the best possible value.

And the old school ways of driving sales through just general promotions are simply no longer optimal for our brands or relevant for our customers.

Instead partners realize that different customer segments need different marketing approaches and to understand the customer best you need deep rich data specifically first party transactional data and that’s where we come in. It’s not new news to anyone on the phone that we’re a marketing company solely focused on driving spending in royalty.

Today across our 36 million active cardholders you will find one of our partner cards in the wallets of one in 10 adults n one in five women. And as we expanded in new markets and products and co-brand we’re seeing shopping trends that point to even greater potential for penetration.

For example specifically for those co-brand partners that had a previous program we are demonstrating our ability to grow the re-launched program faster than their prior experience and we are seeing that our co-brand card holders are spending more and are more engaged than comparable non-card holders.

So simply put we’ve taken the best of what we know from 20 plus years of a customer first brand first private label approach and combine that with a deeper view into the card holders lifestyle via their co-brand spend outside of their favourite brands.

In addition we continue to invest and innovate and expand our presence in all channels where our brand partners and card members interact. This includes our very own mobile virtual card that allows our cardholders to access their card and all of the benefits that go with it via their smartphone.

And we thought it made sense we’re on the phone today to really take this opportunity to address some of the recent articles around Apple Pay and similar emerging payment tools. We want to be very clear when it comes to presence in markets, alliance data and our partners will enjoy flexibility and choice.

We will however take a more equal opportunity approach by making tools available that support virtually all iPhones and Androids and other card member tools, so that our folks can choose a solution that’s best suited for them. I can tell you today we don’t believe the swipe is broken.

Our active card members choose to carry their cards for the unique and full suite of loyalty offerings that the card provides. That said we acknowledge that wallets really are intriguing to consumers in general, as it does create a level of security in some ways convenient telesales of value.

But our card members have also told us that they want to interact with their favourite brands beyond just to secure purchase feature. So we believe we can enhance the card member experience while combining convenience, value, security and rapid and a large bow with our signature loyalty model.

So our strategy is going to be to exist alongside wallets like Apple Pay while taking the card member experience beyond payments as we do this today.

Now to continue to do this effectively we will retain the ability to collect first party enhanced transactional data which as you know cannot be done through some of the proposed solutions you’ve read about lately. And it’s really this type of data that fuels the unique loyalty offerings our card members value.

So let me walk you through a verbal representation of how we view adding value in this space, while retaining access to that treasured first party transactional data. So let’s turn if we will to Page 9, and imagine for a moment that Amanda is browsing through sweaters at her favourite store.

She uses her mobile phone again any mobile phone, not just an iPhone 6 to scan a QR code accepting an invitation to apply for a card. Our fast track app downloads and with very few strokes Amanda completes the application, it really is very quick. Remember these tools were all developed for retailers at point of sale.

Within seconds of submitting our application Amanda receives an approval and magically her digital card is displayed and ready for shopping.

Amanda can now immediately view her credit line, acceptance store customized offers and when she finishes her shopping and pays using her new mobile card she consistently spends 40% or more by using her mobile device than she will spend in any other channel.

As she leaves the store she can now view our digital receipts, her rewards points that she’s earned for her purchase and begin to interact with her favourite brand.

So we’ve view this approach to be far more holistic representation of what our brands are telling us they need and our card members tell us have value and what’s important for the team to notice, this is all in market today. So we don’t have to wait for our brand partners to enable NFC technology on their end.

On a final note we received a number of inbound enquiries from some of our major partners asking about the conversion transaction.

They’ve really noticed that Amazon in particular move to utilize its first party transactional data for targeted display ads and our partners are really seeking ways to counter that activity and view us as a trusted third party to protect their most important assets, their data and their customers.

So we have covered a great deal here so I’ll close with a brief summary.

We would tell you that the outlook remains very, very bright, we have locked down funding costs, stable credit quality, strong receivables growth, we’re seeing operational efficiencies and access to the golden standard of unique transactional data and a privilege to serve highly engaged brand partners.

So we would tell you that all is good within our line of business. Charles back to you..

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 think was disappointing was the fact that our AIR MILES issued in Canada was light. And as Charles talked about, some of that was timing, or primarily timing from when we were going to get the SoBe’s conversion of accounts into the system that’s been delayed till Q4.

Nonetheless, that was a bit of a surprise in Q3 and I think Q4 hopefully it looks like it’s snapping back pretty nicely. But other than that, overall I think everything else came in where we wanted it to.

So with that being said, let’s go to the page that has ‘14 guidance on it, and we’ll go right to the bottom line which is we had strong over performance. We’ll once again bump up our core EPS to 12.40. To remind folks we first increased guidance in February when we reported Q4 of ’13 and we increased in Q1, increased in Q2, increased in Q3.

So, needless to say, I would suggest as a trend there. And it looks like we’re going to wind up the year very nicely. So, if trends continue, hopefully, we’ll finish up the year with some additional good news. That being said, we also want to call out the fact that we are bringing on a loss of new business in our card side.

And as Charles has talked about in the past, the way it works which is a little bit frankly goofy as far as I am concerned, is that you have to load up your reserves and hence take expenses before you actually generate the revenues from those files that are coming on board. That will dampen a little bit what Q4, might be, from a run rate perspective.

But all it does is defer the profits out until the following year. So it’s once again a bit of a timing thing and a bit of headache from an accounting perspective. But the net result is you’re not losing profits you’re just deferring them. That being said, we still expect our earnings to be up almost 25% to $12.40 a share from 10 bucks the prior year.

Of significance to me of course is the fact the organic growth is so strong. In a weakening macro environment from what everyone seems to be saying in fact what we’re looking at is an organic growth rate that is almost four times real GDP.

So that’s actually above our long term growth of about 3x GDP and so that bodes extremely well as we move from ’14 into ’15. So revenue we expect north of 20% of which 10% of that is purely organic growth rate.

Also, you’re seeing that the adjusted EBITDA is going to come in the mid-teens and again that was one of the areas of concern earlier in the year from folks we’ve heard from regarding the single-digit growth rate. Again that’s snapped back very nicely as those programs have ramped up.

Bottom line is very strong organic growth this year of 10% or more, brand loyalty again is probably get the gold star in terms of topline will be up 30% EBITDA, up over 60%. And then despite sort of the weakness in terms of the paying consumer as well as the issuance side AIR MILES itself is in fact growing this year.

We expect both revs and EBITDA to be up a couple of points for the year once you adjust for the Canadian dollar. So, the business is growing and we look for a fairly strong jump up for ’15. Epsilon is running sort of 7% top, EBITDA up around 5%.

And then finally we talked about private label, topline is running around 17%, adjusted EBITDA net around 15%. So all the businesses are growing, I think one of the nice things about our model for people who have listened to me at least for 54 quarters is that our businesses cycle at different times.

And that actually lends it is up to a nice strong consistent performance, year-in and year-out. So taken as a whole we expect to finish this year very strong with consistent growth as we jump off ’15. So, let’s turn the page and talk about the initial cut at 2015.

Obviously, everyone is I guess enthralled with what’s going on in the world today and the macro wins and concerns about double dips and triple dip recessions and everything else from our perspective. What you find is the good news is we have very strong visibility into ’15 the way our businesses are structured and the way things ramp-up here.

As I told people in the past there are many times where we announce real big deals, real exciting deals with new clients, but they don’t mean anything to the current year it's really drive the following couple of years and that’s the case here.

So, what we did is we layered in the Conversant deal expecting that to close by year-end in with that we would expect revenues to be about $6.6 billion, next year up 25%. We would expect our core EPS to grow around 20%, somewhere around $14.80 to $15.

Again keeping in mind that we’re just putting a stake in the ground at this point in the year and obviously we’ll refine it as we have in the past as the quarters play out. But this is guidance that we think is to be solid, adjusted EBITDA and we’re approaching $2 billion on that, so it's really beginning to crank up from that perspective.

So, I think that that should hopefully give people some comfort in the sense of two things. One is in ’14, we had sort of that concern in the first-half it has played out very nicely in Q3 and will in Q4 about bringing on all those folks that was a pretty good bet that we made.

I think the acquisition of BrandLoyalty has performed better than expected. I think that was also a pretty good bet that we made and so as we move into ’15, I think we can feel comfortable with these numbers as a good starting point.

One of the things that I have here flag that Charles keeps telling me to mention is the fact that because of the very, very high growth rate in the card business and the build-up of those receivables again what you’re doing is you are deferring or dampening the results of ’15 by as much as $0.25, because you're essentially bringing on a huge book of business, you have to reserve for it and that defers the benefit out into ’16 and ’17.

And quite frankly in my opinion if we can grow earnings 20% plus we can have organic growth than the double-digits and we’re still setting up tremendous visibility for ’16 and ’17, we’ll do that all day long. But I can now take the sticky off the page that Charles made me put on there. Let’s go into the specifics for 2015, for private label.

As Melisa talked about, its again, it's one of those interesting businesses where in the past prior to the great recession we tended to grow a couple of points faster than consumer revolving debt which used to grow about 7%.

And then consumer revolving debt tanked and has grown virtually not at all for the last five or six years, maybe a couple of points and yet we’re growing the receivables 20 plus percent.

So, clearly what’s going on is the migration of the clients away from the general spend in brand building and towards the very specific first party data driven targeted marketing that we specialize in. And that continues to be a trend that we’re going to ride for a long time.

And as a result, we would expect private label to have another very strong year add a couple of billion of receivables. For 2015, we would expect with that growth rate obviously you’re going to have a bit of compression on your yields as you ramp up those programs, nothing too severe, however.

We don’t see any reason why we shouldn’t target another $2 billion of new signings. For 2015, the pipeline looks quite strong. As Melisa also mentioned, we’re not seeing anything out there that suggests a big jump on the loss rate or funding rates or anything like that. Most of our funding book is locked down.

Loss rates look extremely good as we go into 2015. As we said the last couple of years, we’re not going to make our money on riding losses down, or funding cost down, we’re making our money on growing the business itself. And that continues to be the game plan going forward. I think we’re in good shape there.

Of interest I think is also something that people should know, which is in a rising rate environment actually our profits are enhanced because our book of funding is fixed and yet our assets which are the cards actually adjust upwards. So, it’s a little bit the reverse of what people think.

Overall, we would expect high double digit revenue and low double digit EBITDA growth for ’15. In LoyaltyOne specifically we’re talking about the AIR MILES program. We do see the return of mid-single digit top line growth and high single digit EBITDA growth for the AIR MILES program.

From what we’re seeing in the backlog it does look like we’re going to have a pretty decent ’15 on the AIR MILES side which is nice. We are seeing a build in terms of sponsors who are stepping up and wanting to get ahead of this sort of consumer weakness and spend some more.

So we expect issuance to be up 4% primarily because of that and also because quite frankly the comps are a lot easier. At BrandLoyalty, it’s a little bit of who knows at this point whether they’re going to slow down to the mid-teens growth.

But I think we’ll put a stake in the ground say we would like to see mid-teens growth in both top line and EBITDA for brand loyalty that would be a very positive thing. What we’re seeing right now is we would expect a very strong jump in the first half of the year already based on what they book.

So, that seems to be a business that continues to chug right along regardless of the macro wins. And then finally in Brazil, the program keeps growing. I mean it’s one of those things where it’s not in the financials. It’s not on the balance sheet. It’s an asset that’s going to be very valuable that is very valuable. We own 37% of it.

And we continue to grow collectors. We would expect another 3 million or 4 million collectors to be added in Brazil during ’15. Again, our goal is to get to 25 million to 30 million collectors and at that point hopefully the financials will begin to resemble that of the Canadian AIR MILES program.

We also expect to launch in at least one of the two major regions if not both. So that’s private label loyalty, let’s go to Epsilon, pretty much a lot of the same high single digit organic rev and adjusted EBITDA growth. We have a descent backlog. We continue to see sort of a balanced growth profile for Epsilon as we move into ’15.

We’re getting, a lot of interest is coming out of the desire to have loyalty platforms built for the major companies across the world. Because of the fact that if it’s not going to be a private label card and a general loyalty program also allows us to access the first party transactional data and then do what we do here.

And so huge amount of interest in launching new loyalty programs. One of the really nice things also in Q3 I would say if I could highlight it would be obviously we spend a whole bunch of money on the new digital platform called Harmony.

And it was very nice to see that our transactions had bumped up into the 20% growth range for the first time in many, many, many years. So it looks like the Harmony platform is being received extremely well and that’s also very important as we talked about Conversant.

Speaking of which, the deal with Conversant we still expect to add about 670 million on top of 230 million revenue and EBITDA. And again we have not factored into the numbers at this point the revenue or cost synergies, we just don’t know when the deal is going to close. We’re assuming yearend.

But again we’ll update that as the year progresses; we certainly expect to get something.

And we expect high single-digit organic top-end EBITDA probably the most important thing to us is to get off the mark quickly and get things set up such that we can have the Conversant folks in aggraded with especially Melisa’s folks were getting a lot of interest especially from the private label client in terms of what do we do to counter what Amazon just announced which is using their own first party data to do target display.

We need to offer solution to our 135 clients. And so, we want to arm them with the tool kit that's second to none. And that’s a critical thing we do right out of the gate and if we can get that done, I think we’ll be in good shape.

Consolidated, we’re looking at over $1 billion of free cash flow before regulatory support and you can read the rest in terms of interest expense and earn outs and everything else. But the bottom line is that we expect regardless of the macro environment to have a very significant 2015 following this year’s very strong performance.

You know we’re running along but I think it was important that Melisa got a chance to share with you what we’re doing on the digital side in terms of the virtual cards and everything else because there was a lot of noise in that information out there when Apple Pay was announced.

So, we got a pretty slip solution which I think this is going to be fund.

So to finish up is just sort of a little look at the past, the present and the future, and what we decided to do is go all the way back before the big recession hit and theorize how were we doing, how did we do during the worst recession since the great depression and how we done during the recovery and this should give people a great deal of comfort in terms of we’re not going anyway regardless of what the macro environment does.

Frankly I think the macro environment in U.S. and what we’re seeing on cardholder spend from what we’re seeing on that credit quality would suggest that I think we’re going to have a holiday that’s going to be slightly better than last year, it won’t be huge, but it certainly will be better than last year from everything we’re seeing.

We’re seeing the American consumer at least being very cautious in terms of leveraging up, which gives us a great deal of comfort in terms of the ability to continue to grow. But at the same time you can say whatever you want about the jobs being created. But still add 3 million jobs; you’re going to add income to the economy.

So, we think that the macro environment especially here in the U.S. is quite good. As we move into 2015 everyone would like it to be stronger, it won’t be, but nonetheless this is a perfect environment for us.

And you’ll see that we tend to play through pretty much anything, and if you were to go back all the way to ’07, I think what you’ll find is that we’re very consistent in terms of what we’re printing, since 2007 and including the great recession revenues and EBITDA and earnings have gone up at an annual rate of 16%, 14% and 18% respectively.

So, that compares to the overall market which is roughly 2% topline and 5% in operating earnings. So, the model continues to be a strong outperformer vis-à-vis the others in the marketplace and as a result shareholders have been rewarded with an annual return of 18% since ’07, again versus 4% for the overall market.

So, the bottom line of all of this is we expect a very powerful combination of high growth, strong free cash flow and consistent earnings, businesses or cycle at different rates and as we look into ’15, we expect to see another very, very strong year. The final note I’ll mention is that there has been a lot of questions on the Conversant deal.

And frankly I think there is a lot of things that will clean themselves up as ’15 progresses first and probably one of the most common one is that they have a model that is difficult to really predict in terms of the quarters.

And as a result it's been a hit or miss type approach with Wall Street in terms of guidance and so once we folded into us certainly we can take care of that very quickly as it smooths into the overall bigger entity itself. Also the legacy commodity type businesses there continue to burn-off; it's going to be less than 20% of the overall company.

And so overall as Melisa talked about what we are focused on is the transition of that business into a business where retailers view Conversant as the trusted third party to hold their most valuable asset which is their data.

We’ll use that data along with the data that we have at Epsilon and at private label for those clients and use that to again have a toolkit that’s second to none for the marketplace.

So when you put all the pieces together, you will have the ability to have first party data, analytics, the marketing, the creative and the distribution across those old channels as well as the newer digital channel in the emerging channels in targeted display. So, appreciate everyone’s patience.

Again, I understand it’s been, it’s a challenging environment out there in the markets but I can tell you from our perspective we feel very good about the rest of this year and we feel very good about ’15. So that being said, we’ll open it up for few questions and let everyone back to work..

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.

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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..

Melisa Miller:.

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?.

Edward Heffernan:.

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..

Charles Horn:.

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?.

Edward Heffernan:.

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?.

Edward Heffernan:.

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..

Thank you ladies and gentlemen. This concludes today’s conference call. You may now disconnect..