Cash - Acumen Learning

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WELCOME BUILDING BUSINESS ACUMEN
Important Questions
How much do you know about
Epsilon and ADS Corporation’s
Key Success Measures?
(or Key Performance Indicators (KPIs))
Let’s find out!
Pop Quiz
For fiscal year 2010:
Epsilon
ADS
$______
N/A
$______
N/A
$______
$______
3 - What was our Total Revenues?
$______
$______
4 - What was our Net Income?
N/A
$______
$______
5 - What was our EBITDA Margin?
______%
______%
6 - What was our Net Margin?
______%
N/A
______%
7 – What was our Return on Assets?
______%
N/A
______%
8 - How much did Total Revenue change YOY?
______%
_______%
9 - How much did EBITDA change YOY?
______%
_______%
______%
N/A
_______%
1 - How much Cash was on hand?
2 - How much Cash was generated by
Operating Activities?
10 - How much did Net Income change YOY?
Learning Objectives
 Understand the 10 key performance measures that are
important to Epsilon, ADS and the Executive Team.
 List and describe the five business drivers all successful
businesses must focus on.
 Teach specific components of ADS financial statements.
 Better articulate company performance & strategy.
 Create a personal action plan that can positively impact
personal performance and company results.
Acumen Means?
3
~Wayne Gretzky~
“The Great One”
When Gretzky’s Dad was asked by a
reporter,
“What makes your son so great?”
He responded by saying;
“Wayne doesn’t skate to where the puck is.”
“ He skates to where the puck…
is going to be.”
(Hockey Acumen!)
Acumen Means?
…the ability to make good business decisions in a timely manner with an
understanding of how the decision should impact the business.
3
Business can be tough!
 Only 5-10% of business start-ups survive past 5 years.
 16% of CEOs lose their job every year.
Booz Allen Hamilton 5th annual Study
 70% of merger and acquisition activity do not live
up to expectation.
Wall Street Journal 2007
Why do businesses fail?
6
Business Acumen:
Every business must focus
on five business drivers.


If they do, they will be
successful.
If they don’t, they’ll fail.
Let’s Start a Business!
4
Cash is King!
“Cash is a company’s oxygen supply.”
-Ram Charan
“Cash is more important than your mother."
Al Shugart Former Seagate CEO
What happens to a company who runs low on cash?
Cash & Cash Flow
Sources of Cash
• Earn it
•cash from Operation
• Sell Assets
Pro: No Cost
-Con: Time
Pro: Immediate -Con: Reduces Assets
•Cash from Investing
• Borrow it
Pro: Immediate -Con: Cost (Interest)
•Cash from Financing
Can a company have too much Cash?
9
Cash
Can a company have too much Cash?
1)More attractive in a buy-out.
2)Low return.
3)Shareholders don’t like it.
4)May make poor decisions.
9
How much cash should you have?
Companies ought to keep just enough cash to
cover their interest, expenses and capital
expenditures; plus they should hold a little bit
more in case of emergencies.
Investopedia
Definition: Cash
DEFINITION
What is required to grow and maintain the
business.
MEASURES
Cash
Cash – the bills and coins in the register,
petty cash, and cash in the bank. Also
includes cash equivalents, like CD’s and
other highly liquid investments, that
easily convert into cash within 90 days.
Cash Flow – The cash generation from
core business activities calculated from
the difference between the cash that
flows into and out of the business in a
given period of time (month, quarter,
annual)
8
Cash
ADS
(In Millions)
ADS
ADS
ADS
ADS
2010
2009
2008
2007
$2,791
$1,964
$2,025
$1,962
Cash and Equivalents
$139
$213
$157
$219
Cash as % of Revenue
4.98%
10.86%
7.75%
11.17%
$903
$358
$451
$572
Business Measures and Metrics
Total Revenue
Cash
Cash from Operating Activities
9
Cash
Benchmarks
(In Millions)
Business Measures and Metrics
Total Revenue
Cash
Cash and Equivalents
Cash as % of Revenue
Cash from Operating Activities
ADS
VISA
AMEX
HarteHanks, Inc.
ACXIOM
2010
$2,791
2010
$8,065
2010
$30,242
2010
$861
2010
$1,160
$139
4.98%
$903
$3,867
47.95%
$2,691
$2,498
8.26%
$9,288
$86
9.99%
$95
$207
17.85%
$166
9
Equation:
Purpose:
Cash from operations + Cash from investing
+ Cash from financing = Net Change in Cash
Cash Management
?
Net Change in Cash 
Started Year 
Ended Year 
?
Definition: Profit
DEFINITION
What is left over after you have subtracted
expenses. Can be expressed in dollars ($)
or percent (%).
MEASURES
Profit
EBITDA/EBITDA Margin– Reflects
earnings before interest and taxes.
Net Profit / Net Profit Margin – Profit
after all expenses have been subtracted
from sales.
10
Every business must earn a return that is
greater than the cost of using other
people’s money.
-Ram Charan
No Margin, No Mission.
-Stephen R. Covey
Two ways to impact PROFIT
Total Revenues (Sales)
$100
- Cost of Operations
$ 55
- Provisions For Loan loss
$ 14
- General & Admin. (G&A)
$
100%
3
=EBITDA
$ 28
-Depreciation & Amortization
$
= Operating Income
$ 23
28%
5
-Interest & Other Expense
$ 11
-Taxes
$
4
= Income From Continuing Operations $
7
-Losses from discontinued operations
$ --
= Net Income
$
7
23%
7%
7%
Driving Profit
High and Low Profit Margins
S&P Average TTM:
11%
Who has much higher profit margins?
Coca Cola
Microsoft
Google
Apple
33%
30%
29%
21%
Why the high margins?
Driving Profit
High and Low Profit Margins
S&P Average TTM:
11%
Who has lower profit margins?
ExxonMobil
Wal-Mart
Costco
8%
3.8%
1.7%
Why the low margins?
Calculating Adjusted EBITDA
2010
EBITDA
$ 772,446
+Stock Compensation Expense
$
+Loss on Sale of Assets
$
--
+Merger and Other Costs
$
--
= Adjusted EBITDA
$ 822,540
50,094
Profit
ADS
(In Millions)
Business Measures and Metrics
Total Revenue
Net Income
ADS
ADS
ADS
ADS
2010
2009
2008
2007
$2,025
$1,962
$206
$164
$2,791
$1,964
Epsilon 613,374 514,272
$194
$144
Profit
EBITDA Margin
27.67%
27.14%
29.45%
27.94%
Net Margin
6.94%
7.32%
10.19%
8.36%
11
Profit
Epsilon
(In Millions)
Business Measures and Epsilon Epsilon
Metrics
Q2-2011 6 Month
Total Revenue
Profit
Adjusted EBITDA Margin
Operating Income From
Continued Operations
Margin
Epsilon
Epsilon
Epsilon
2010
2009
2008
$188
$344
$613
Epsilon 613,374 514,272
$514
$491
21%
21%
24.83%
24.94%
25.78%
N/A
N/A
10.61%
9.62%
8.06%
11
Profit
Benchmarks
(In Millions)
ADS
VISA
AMEX
HarteHanks, Inc.
ACXIOM
2010
2010
2010
2010
2010
$2,791
$8,065
$30,242
$861
$1,160
$194
$2,966
$4,057
$54
$(23)
EBITDA Margin
27.67%
60.19%
19.72%
13.30%
2.67%
Net Margin
6.94%
36.78%
13.42%
6.23%
-2.00%
Business Measures and Metrics
Total Revenue
Net Income
Profit
S&P 500 Averages:
Net Margin = 11%
11
Profit In Action
United Parcel Services (UPS) – Avoiding left-hand turns
-92,000 trucks worldwide
-Saved over 28,541,472 miles
-Saved 3 million gallons of fuel
-Reduced insurance premiums
-Reduced maintenance frequency
and costs
11
Epsilon Financial Statements
The Annually Reported Financial Statements
• Statement of Income (P&L)
• Balance Sheet
• Statement of Cash Flows
1.
What is the basic equation for each statement?
2.
What is the purpose of the statement?
3.
What are the key numbers and how are they trending?
4.
How can you impact each statement?
Indicates:
Equation:
Revenues- Expenses= Income
P&L
Profitability
SG&A:
(Revenue = Sales)
= Top Line
• Salaries
•Sales commissions
•Benefits/Severance
• Rental Expense
• Bad debt charges
• Merger integration costs
• Professional services:
Attorney fees, Accounting
(G&A)
EBITDA margin
=27.67%
= EBIT
= Bottom Line
Net profit
margin = 6.94%
EBITDA Margin
Total Revenue:
2,791,421
EBITDA:
EBIT
629,220
+67,806
+75,420
= 772,446
÷
2,791,421
= 27.67%
Net Profit Margin
Net Income:
Total Rev.
2,791,421
193,737
÷
= 6.94%
= Net income /
Diluted # of shares
S&P 500 Ave. = 11%
Increase revenue by 100K
Statement of Income (P&L)
100K
55K
55K
45K
45K
17K
28K
Statement of Income (P&L)Lower costs by 100K
100K
100K
100K
100K
37K
63K
Which is better?
Raising Revenues $100M =
-or-
$28
Cutting Costs by $100M =
$63
What are the implications of each
action?
Assets (Read from guide book p. 12)
Balancing…
Asset
Strength
&
i.e. cash, inventory
and ratings
Asset
Utilization
Definition: Assets
DEFINITION
Assets
What we have and how well we use what
we have.
MEASURES
Return on Assets (ROA)— percent
value of Net Income to Total Assets
12
Example of Profits and Assets
“In 1912, the Model T for the first time cost less than the prevailing
average annual wage in the United States.”
“Ignoring conventional wisdom, Henry Ford continually sacrificed
margins to increase sales. In fact, profits per car did fall as he slashed
prices from $220 in 1909 to $99 in 1914.”
“But Sales Exploded!”
“Ford demonstrated that a strategic, systematic
lowering of prices could boost profits, as net
income rose from…
$3 million in 1909 to $25 million in 1914.”
~Daniel Gross, Forbes Greatest Business Stories
13
Assets
ADS
(In Millions)
Business Measures and Metrics
Total Revenue
Net Income
ADS
ADS
ADS
ADS
2010
2009
2008
2007
$2,791
$1,964
$2,025
$1,962
$194
$144
$206
$164
2.34%
2.75%
4.75%
3.94%
Assets
Return on Assets (ROA)
ROA = Net Income = $194 = 2.34%
Total Assets $8,272
13
Assets
Benchmarks
(In Millions)
Business Measures and Metrics
Total Revenue
Net Income
HarteACXIOM
Hanks, Inc.
ADS
VISA
AMEX
2010
2010
2010
2010
2010
$2,791
$8,065
$30,242
$861
$1,160
$194
$2,966
$4,057
$54
$(23)
2.34%
8.88%
2.76%
5.78%
-1.77%
Assets
Return on Assets (ROA)
13
Epsilon Financial Statements
The Annually Reported Financial Statements
• Statement of Income (P&L)
• Balance Sheet
• Statement of Cash Flows
1.
What is the basic equation for each statement?
2.
What is the purpose of the statement?
3.
What are the key numbers and how are they trending?
4.
How can you impact each statement?
Indicates:
Equation:
Financial (asset) Strength
Assets = Liabilities + Equity
Snapshot in time
Most Liquid
Becomes Cash < 1 year
Least Liquid
Current Ratio
= 1.6
Due First
Due in < 1 year
Due Last
Balance
Definition: Growth
DEFINITION
The ability to increase year over year,
quarter over quarter, and/or month over
month.
“In today’s business world, no growth means
lagging behind in a world that grows every
day…”
Growth
“Investors expect it, employees are
energized by it, customers are generally
attracted to it and executives are measured
by it.”
MEASURES
Revenue Growth
EBITDA Growth
Net Income Growth
14
Business in Rapid Decline…
• Best & brightest leave first.
• Productivity goes down.
• Morale goes down.
• Costs are cut, which limits ability to grow,
company becomes less profitable.
Studies Show:
It usually takes 4 or 5 years for the company to
recover.
15
Business in Rapid Growth…
• Attracts/Retains the best & brightest!
• Productivity goes up = more profit = more
cash = more ability to grow!
• Morale is high.
• You have the ability to grow in your career!
Growth gets more time & attention than any of
the 5 elements in a public company.
15
Growth
ADS
(In Millions)
ADS
ADS
ADS
2010
2009
2008
$2,791
$1,964
$2,025
$194
$144
$206
Revenue Growth
42.10%
-3.01%
3.22%
EBITDA Growth
44.91%
-10.62%
8.78%
Net Income Growth
34.79%
-30.36%
25.81%
Business Measures and Metrics
Total Revenue
Net Income
Growth
15
Growth
Epsilon
(In Millions)
Business Measures and Epsilon Epsilon
Metrics
Q2-2011 6-Months
Total Revenue
Epsilon
Epsilon
Epsilon
2010
2009
2008
$188
$344
$613
$514
$491
38%
31%
19.26%
4.68%
N/A
26%
25%
18.8%
1.3%
N/A
Profit
Revenue Growth
Adjusted EBITDA
Growth
15
Growth
Benchmarks
(In Millions)
HarteACXIOM
Hanks, Inc.
ADS
VISA
AMEX
2010
2010
2010
2010
2010
$2,791
$8,065
$30,242
$861
$1,160
$194
$2,966
$4,057
$54
$(23)
EBITDA Growth
42.10%
44.91%
16.70%
28.96%
13.14%
109.93%
0.05%
1.84%
5.53%
-68.71%
Net Income Growth
34.79%
26.05%
90.47%
12.32%
-151.96%
Business Measures and Metrics
Total Revenue
Net Income
Growth
Revenue Growth
—Remainder of 2011 Outlook—
“Maintain double-digit organic revenue growth in 2011. Augmented by the recent
acquisitions, total revenue growth is expected to be in the mid-30 percent range
compared to 2010. Adjusted EBITDA is expected to trend with revenue growth as
margins are expected to remain consistent with 2010.”
Q2 Press Release.
15
Q2 Earnings Release
Page 47
Definition: People
DEFINITION
-The External Customer, Vendor/Re-seller,
or Internal Customer that has the ability to
impact the success of the business..
-Employees
People
16
People
What is more important than meeting customer expectations?
Exceeding?
Anticipating Customer Needs & Expectations!
“If I would have asked my customer what they wanted, they would have
said a faster horse!”
~Henry Ford
17
Failing to Anticipate customer needs/expectation!
What companies have failed to anticipate customer expectations? What were
the results?
• GM/Ford
• Kodak
– Unprepared for recession and required government bailout
money. Ford secured line of credit prior and retained full
ownership.
– decided to move to digital product line. Polaroid did not and is no
longer a serious competitor.
• IBM
– In 1943, the CEO said the customer need for their product was
approximately 5 computers for the entire world.
• Sony
– Did not move to a digital music player and lost a significant market
share to innovative companies like Apple.
17
Goal for 2011
Sell More Fully Integrated End-to-End Marketing Solutions.
“In our Epsilon segment, we have assembled what we
believe is the industry’s most comprehensive suite of
targeted and data-driven marketing services, including
marketing strategy consulting, data services, database
development and management, marketing analytics,
creative design and delivery services such as email
communications.”
2010 Year End Press Release
Page 51
Industry Leadership
We’ve Invested Over $1.3 Billion To Be The Comprehensive Provider
Epsilon acquired by
Alliance Data
1969
Epsilon
founded
Page 52
Oct 2004
Sept 2005
Epsilon acquired
Bigfoot Interactive
Nov 2005
Frequency Marketing, Inc.
integrated into Epsilon
ICOM integrated
into Epsilon
Epsilon acquired
CPC Associates
Apr 2006
Sept 2006
Epsilon acquired
DoubleClick Email Solutions
Feb 2007
Epsilon acquired
Abacus
Jan 2009
Epsilon acquires
Aspen Marketing
Services
Ju l 2010
Jun 2011
Epsilon acquired the
Equifax Direct Marketing
Services Division
Marketing Database
Abacus Cooperative
Design • Development • Hosting
Transactional Cooperative Database
• Predictive Modeling
Interactive
Survey Data
Web design & hosting
Real-time decision support
Survey-driven Data • Targeted Marketing
Solutions
Loyalty Management
Technology platforms & Program
Strategy Services
Compiled data
Weekly New Mover • Lifestyle
Demographic
Data Processing Services
CDI/PDI
Data Hygiene
NCOA, PCOA, Merge/Purge
DM Agency
Interactive
Multichannel Communications
Marketing Strategy • Account Management
• Creative
Consulting Services • Search Engine •
Website
Strategy & Analytics
Print Production • Letter Shop
Strategy Services • Modeling & Analytics
Experiential Marketing
Page 7
Direct Mail
Hispanic Marketing
Epsilon Ranked #1 in US Database Marketing Service
Providers, Q1 2011
• Ranked #1 in Current
Offering.
• Leading scores in





Database Management
Execution and Fulfillment
Corporate Strategy
Industry Strategy
Global Strategy
• Strong Market Presence
led by Financials and
Employees
Page 54
What are your best practices in anticipating CUSTOMERS
needs?
(Capture ideas on page 17)
• Know your business and how you impact results!
• Develop formal processes for listening to customers,
both internal and external.
• A quarterly meeting with your boss…ask, how am I
doing? What could I do to improve?
629 + 143 = 772
2,791
194
2,791
194
2,791
629 + 143 = 772
194
8,272
1,964
408 + 125 = 533
144
1
139
2
903
3
2,791
4
194
5
27.67
6
6.94
7
2.34
8
42.10
9
44.91
10
34.79
Epsilon Corporation’
Key Success Measures
1½
SCORING:
Right answer =
1 point
Somewhat close =
½ point
Missed it by a ways = 0 point
0
(within: $2B, $2, 2%)
35
Retaining Content over Time
Content Retention
Review
Apply
Teach
15%
Time
52
Post Course Action Items:
1. 7 days:
Teach one of the principals learned in class today,
to someone in your department.
2. 7 days:
Discuss your action items with your manager in the
next 7 days.
3. 30 days:
Read the first 90 pages of:
“What The CEO Wants You to Know“
4. 30 days:
Get with your class partner and give an account of
your progress on your action item(s).
Start now:

Build and practice your new business acumen skills.

When making decisions, determine how the outcome will impact Cash, Profit,
Assets, Growth, People…
Learning Objectives
 Understand the 10 key performance measures that are
important to Epsilon, ADS and the Executive Team.
 List and describe the five business drivers all successful
businesses must focus on.
 Teach specific components of ADS financial statements.
 Better articulate company performance & strategy.
 Create a personal action plan that can positively impact
personal performance and company results.
Where to Find Information
(page 55)
* nasdaq.com
* finance.google.com
* reuters.com
* hoovers.com
* yahoo.com
* smartmoney.com
Glossary: page 58
One final thought…
People will work hard for a
paycheck,
harder for a person,
and hardest for a reason.
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