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Alliance Data Systems Corporation (NYSE:ADS)

Barclays Capital Emerging Payments Forum

March 19, 2013 2:35 pm ET

Executives

Edward J. Heffernan - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

Darrin D. Peller - Barclays Capital, Research Division

Darrin D. Peller - Barclays Capital, Research Division

.

All right. With us today, we're obviously very happy to have Ed Heffernan with us, the CEO of Alliance Data. Alliance Data is a company that I remember recommending in 2009 against the tide, let's just say, and it's been a fantastic company since. Obviously, it's one of the most impressively performing stocks over the last 2 years, really, and it continues to do well this year. Three major segments but I'll let Ed really hit in on that. He's going to talk for about 5, 10 minutes, then we'll have a conversation for a few minutes and open it up to Q&A.

Before we start, we're going to do a couple of those quick ARS questions again in the sense of audience response system, so if you have your handheld devices. Number one, do you currently own ADS stock? Number 1, yes; number 2, yes but equally; and 3, underweight; and 4, no.

[Voting]

Darrin D. Peller - Barclays Capital, Research Division

Okay. And number 2 question is what is your general bias towards the stock right now? Positive, negative, or neutral?

[Voting]

Darrin D. Peller - Barclays Capital, Research Division

All right. Thanks, Ed.

Edward J. Heffernan

86%. Man, I've got some work to do. Okay. We'll get going here. As everyone who knows me, 5 to 10 minutes of talking is probably not going to happen. I just get warmed up at about half an hour or so, but I'll try to keep it going. I appreciate everyone showing up here today. For those of you listening on the webcast, the rain is coming in sideways as we're walking across here. I mentioned that when I left Texas, it was bright and sunny and warm. So with that being said, I do want to leave some time for Q&A. But I also want to make sure that I can give you a sense of how the company is doing and how the year looks. I think that for those of you who have been tracking us for a while, it's been a heck of a fun run since we went public at '12 -- back in 2001, and I would say right now that if I were to look across the businesses, I would be as comfortable with the future of the company at today's levels and today's value than I have been at any time in the past. It looks like it's going to be a very significant and solid run for 2013. A lot of this is, again, stuff you've heard from me many times in the past, but '13 is shaping up to be a very nice year. And specifically, if you look at our businesses and what we do and seeing if I can even move a slide here, which -- hey, it worked. Very simply, what we do, because I saw a bunch of you who don't know who we are, we take transactional level information. We use that information, sift it, sort it, cut it, slice it, dice it, do whatever you want to do with it, and we put it into various buckets, we segment it and then we push it out the other side to various distribution channels from digital print to point-of-sale to permission-based email, mobile, social, targeted display, all those distribution channels and, essentially, we are doing micro-targeted marketing, utilizing information about your purchases.

And so, for example, whether you're in the division that does Private Label cards, if you have a card from Ann Taylor, Victoria's Secret, Pottery Barn, Crate and Barrel, Pier 1, most of the higher-end type cards, as you walk through a mall, those are our customers. What that allows us to do is it allows us to take SKU level information. And there's a lot of noise out there about close loops and what gives you SKU and what doesn't. We get SKU. And we use category and SKU level information that can segment down to the individual, that can tell me exactly your likes and dislikes, and our job is to basically convince you to come into the store one extra time each year, and if you can do that, then we know we've done our job for the retailer. That's on Private Label.

If, in fact, it's a different type of retailer, in this case, let's say an Epsilon client, we cater to financial services, the pharmaceutical, packaged goods, programs that we do everything from the creation of the program, a loyalty program, to supplying all the nuts and bolts from all the demographic and psychographic data to the transactional data, we build the databases, we do the analytics, we do the distribution. So we do it all, and you'll hear me talking about one throat to choke. We're the throat, I guess, and what we effectively do is we create, build and run these massive loyalty programs, customer acquisition programs, customer retention programs. If you know Hilton HHonors, that's us. Citibank Thank You Network, that's us. Recently, we launched Walgreens, that's us.

So basically, for the Global 1000, if you want to promote loyalty and drive transactional-based marketing, you'll choose a Private Label card if you want the liquidity aspect of it for your customer. If you don't want that, you'll choose Epsilon. And if you don't like going at it alone and you want to do it in a coalition where you join hands with other retailers like we do in Canada, and you'll put together Bank of Montréal with American Express, with Safeway, with Shell, all of them pour all their loyalty and marketing dollars into one big bucket, that's our bucket. We are the bucket. And that's called a coalition program. And what we do is when you go into Shell or Safeway, you're earning points, we make money per point, we issue rewards, we make the spread.

So hopefully, with this very quick introduction, you're getting a sense of what we do. What we do is effectively take, regardless of the platform, information. We make it richer, we make it meaningful, and on behalf of our clients, we push that information out through all of the various channels to help drive customer loyalty and enhance sales. That's what we do for a living.

Does it work? The financial model, we are almost exclusively an organic growth shop. The target that I've given to our folks is that we want to grow at roughly 8% organic top or about 4x real GDP, which in today's new, new environment, I think, is a reasonable target for a growth company. We tend to get leverage that will get double-digit EBITDA and then drive it into low teens growth. That's what we've done and we've done it for quite some time. We'll probably do somewhere around $1.3 billion of EBITDA. We'll throw up $700 million plus of pure free cash flow this year.

It is a very, very solid model. Organic growth is what we're all about. Cash flow, very strong as we talked about. We will usually do maybe 1 moderate-sized acquisition each year that will help enhance the growth. And of course, since I know everyone is asking these days about dividends and stock repurchases and stuff like that, yes, we are involved in that, we have a $400 million plan this year, we'll pick a way for sure at the stock and you should also know that we did not come late to the party. We were the folks back at the depths of the recession that backed the truck up and we took up roughly 40% of the company at $50. So that, to me, is when you're supposed to be buying the stock. So I think we will be active, but at the same time, to the extent there's a swoon or something like that on the macro side, we will not be shy about stepping in in a big way.

That being said, we're looking to do both M&A and return some to shareholder.

I think most importantly, because I've been there for the entire time, we've been doing this consistently, this growth model. And in fact, I've done it for 46 quarters. So if you divide it by 4, that's a long time. But it's been fun. We've had a lot of fun. I think we're right in a sweet spot of where there's a lot of secular growth and that secular growth is being driven by a huge amount of marketing spend being diverted towards measurable transactional-based marketing. And that's what we do for a living.

In terms of guidance, so far so good. We had a very good year last year. Again, behind these numbers, we expect to have, again, double-digit growth across the board this year. I will mention, for those of you who are fascinated by the arcane world of accounting, that we have something called phantom shares. That's about 8 million shares in our share count that apparently aren't really there but I have to put there for accounting purposes. That will go away when a couple of my convertible bonds mature. If you're thoroughly confused, talk to Darrin; he knows a lot more about it than I do. But the fact of the matter is the year is off to a very strong start. I think, our Private Label business, we would expect another record year of signings there. We expect credit quality and funding cost to remain at low levels. I would expect file growth, despite the industry, which isn't really growing, to perhaps hit 20% this year. I would expect signings to be at record levels similar to last year. I would look to sign about 10 new retailers, which would suggest '14 is shaping up nicely. So I think Private Label is in very good shape.

Canada, I think, financially, we'll do fine this year. What we are seeing in Canada is some weakness in the consumer spend side, specifically our partners at Bank of Montréal and American Express are seeing some softness in the consumer spend there. That will hit our key metric, which is miles that are issued or points that are issued. That will be soft in the first half of the year. What I do want to say is we're already well on the scene in terms of making sure that flips in the second half of the year. We'll do that through the assumption that consumer spending will be weak for the entire year and we've got to flip it anyhow. We'll do that by: A, ramping up 2 big national deals we have signed with General Motors and Staples that will start spooling up in the back half; B, we know with the card issuers that they want to get spending going even more than we do, so most likely, they will be launching some promotional activity. Again, that will help recover some of the weakness that we're seeing in the first quarter. And I think, finally, there'll be a number of initiatives we'll put in place to make sure that we recover any type of softness from the first half so that this metric flips nicely in the second half. I feel pretty comfortable that can happen. And again, none of it impacts the financials for this year. A lot of this is deferred recognition but I got to make sure '14 and '15 are in good shape. So financially, the Canadian business should do fine this year. Let's just keep our eye on that one metric and make sure it flips in the right direction in the second half of the year.

Finally, Epsilon. The big question last year was, "Do we have some type of fundamental issue on the organic growth side, which was relatively soft in the back half of the year?" And fortunately, at this point, I can say that has come all the way back. And it does look like we just had a slight air pocket at Epsilon, the organic growth in Q1 looks quite strong. And therefore, I would expect Epsilon to have a very good year.

And then finally, in Brazil, we are now up to 7 million folks enrolled in our program. We would expect to get that up to 10 million by the end of the year. And again, this is a program that we just started a year or so ago, so it's really spooling up down there. It's the exact same model as the Canadian model.

At the end of the day, I think that '13 looks quite good as we move into '14, which is what we're kind of working on right now. '14 and '15, what we're seeing is that there's no cliff out there that we're worried about. It's more a question of executing across the board. So this is hopefully the same speech you're going to hear over and over and over again, which a lot of our longer-term shareholders are more than happy to listen to. And I think I'll stop there because there's really nothing else to add.

Darrin D. Peller - Barclays Capital, Research Division

All right. Why don't we sit down for a few minutes.

Question-and-Answer Session

Darrin D. Peller - Barclays Capital, Research Division

Ed, just a few follow-up question with the time that we have and then we'll open it up. Just start off with the Private Label business, you mentioned earlier just how strong it's been, but I think given the absolutely strong growth on organic basis, if you backed out the deals that you've done, which you've done a few on the portfolio side, private label organic growth has still been in the teens. It's pretty remarkable when you look at in most banks and card issuers growing, and if they're lucky, in the mid-single digits in terms of receivables growth. How is it? How do you do it? How is it that you accomplish that type of growth rate?

Edward J. Heffernan

I have no idea. Just kidding. I think that what we're seeing today is fairly interesting in the sense of we've never seen it before and I'm hoping that it is more of a secular trend than a one-timer, and that is we're finding that the CMOs at a number of retailers have stepped forward basically saying, "Look, I need as much data at a granular level as I can get hold of." And the Private Label model, because we hook into the inventory systems within each retailer, allows us to connect the actual customer's name with SKU-level information. And there's no other system out there that does that. And so, there's a lot of attraction to having 30%, 40% of your sales hooked into the individual customer who made those purchases. We have 26 million active accounts, and of which something like 90% are women. Typically, it's -- they have 1 general card. We don't want to be the main card. We want to be 1 of those 2 or 3 of their favorite brands in their purse. And usually, these are small credit lines, small balances but usually very, very loyal folks and that's what the retailer wants to cater to. And if there's anything that can come out of all the noise around big data and digital this and digital that and mobile and everything else that everyone is just getting pummeled with these days, the fact of the matter is it is having an impact on our business in the sense of people are looking harder at the end product, which is SKU-level information and that seems to be driving some of our clients actually signing on the dotted lines, so that's good.

Darrin D. Peller - Barclays Capital, Research Division

All right. Maybe we move on to credit quality, which has also been extremely strong for, I think, a longer period of time than some people might have anticipated but still very stable, delinquency has been relatively stable. Some of it, I mean, maybe if you could pull aside what part of that is actually just grow over? I mean, you're obviously growing the portfolio at the base significantly, so is it truly organically strong? And then on top of that, how sustainable is this strength?

Edward J. Heffernan

Yes. It's, I guess, to use a financial term, it's kind of weird in the sense of you've got basically the whole industry tends to have losses, which track very closely with the unemployment rate. And now, ever since the Great Recession, you've got this great divergence from the unemployment rate, and we're somewhere, 300 basis points below it. We're essentially assuming is that so much got burned off during the Great Recession that what's left over is a pretty prime file and that's what we're seeing. I don't think by growth is really driving much of the improvement because the age of the file itself is still somewhere in the 30s in terms of months, which means it's already gone through its whatever cleansing cycle. So what we're basically seeing is very flat credit quality in terms of around 5% of losses. What's strange is that you look at recoveries, you look at personal bankruptcies, you look at all the delinquency flows, there is not a hint of any uptick at all across any of the buckets. And so it would suggest that rather than returning to a higher level sooner, that this thing is going to be the new new for quite some time. Now the offset to that, of course, is you're also seeing people paying off a higher percentage of their balances. So just because losses are low does not mean that we're optimizing profits. In fact, if losses are a little bit higher, it means revolving rate would be a little bit higher, we'd make a little bit more money. So you could actually make the argument that if losses trended back up, we'd actually make more money. So it is what it is and what we're seeing is a bit more of, if you want to call it super prime type file where you have higher type payment rates but you have better credit quality, and that's what we have right now. And I don't see it drifting up any time over the next year or so.

Darrin D. Peller - Barclays Capital, Research Division

With regard to credit quality, one follow-up. The reserves that you've taken have obviously continued to be at a very significant cushion to the level of charge-offs that you have and that's been an interesting data point if you look at what could be the profitability of the business, if you wanted to be more lax, right? A little less conservative on that front and potentially let some release now. Is that expected to continue to drop in terms of the overall reserve, or are we at a point of inflection now where, given where we are in the macro, given where we are in the credit cycle, you're going to keep that more or less flat and then maybe you can build down the road? Or are we going to see some more come out?

Edward J. Heffernan

It's fair question. I think that we've set reserves based on our level of comfort with what we know about the future. And frankly, we still don't know exactly what the future holds. My guess is the reserve will come down a little bit, probably not all that much because we don't feel that -- all that comfortable that this is where things are going to finally settle out. So we're going to give a little more time and it's nice to have that in your hip pocket.

Darrin D. Peller - Barclays Capital, Research Division

Okay. And then last question on Private Label. From a deals standpoint, you've obviously done a handful over the past couple of years. Generally, they've been very accretive. With the initial season that needs to take place, what should we expect over the next 6 to 9 months or even the next year?

Edward J. Heffernan

Yes. We typically shoot to sign about 5 new retailers a year. Virtually all of them are starting programs from scratch and so we call it a vintage, we'll spool these retailers up over a 3-year period. And if you have these vintages every year, that's how we can grow even when the general purpose card market doesn't grow. And so where we've looked at -- what we found last year was we ended up signing up double that or 10. I think we'll sign up probably another 10 this year. That's enough to ramp up to about $1 billion of incremental receivables. And when you only have a portfolio that's $7 billion, that's significant. And so we want to have that sort of $1 billion vintage each year. The vast bulk of the signings this year will be brand-new programs for retailers who have previously not put marketing dollars into this channel. But as we talked about earlier, this channel is looking a lot more attractive to a lot of the CMOs, so we like the fact that it will ramp up nicely into '14. In terms of files, there's a couple of modest-sized files we're looking at. We'll probably bring them on, but again, the nice juicy stuff is when they're ramping up over a 3-year period because you can count on them to continue to grow dramatically, even if the macro environment weakens.

Darrin D. Peller - Barclays Capital, Research Division

And from a competitive standpoint, we've seen this kind of wane and wax, where you've seen other large competitors in private label coming to the market pull out. It looks like some are back again. Is that fair, or are we seeing...?

Edward J. Heffernan

We've got good banks and bad banks and non-core and core and then it's back the other way. So yes, it's kind of all over the place. The good news is that, from our perspective, our sandbox -- we tend to fly a little bit below the radar screen. We're never going to go after those monster-size portfolios, it doesn't fit with our DNA. We're not looking for that. We're not looking for big balances. We're looking for retailers that have a very strong focus on their brand, willing to invest in that also, where the customer walking through is probably a 700 FICA, so good quality credit. And once you sort of narrow that world down, you're talking about probably 300 or so potential clients and about 150 have a program today. We have 110 of those, so that's our sandbox in which we play. We like it. And I think, in terms of the big banks, for them to spend their time where we play, I'm not sure it's going to move the needle because they're so big. But for us, it certainly moves the needle.

Darrin D. Peller - Barclays Capital, Research Division

Okay. If we move over to AIR MILES now, just for perspective of growth, the issuance and the redemption trends, can you give us a sense of what you expect on, again, the AIR MILES issuance in Canada and then maybe the other side of that as well?

Edward J. Heffernan

Yes, we like to -- Canada, which has been around, well, the country has been around a lot longer. But the program has been around since '92, and so we have 72% of the nation is active in the program and -- I'm just curious, are there any Canadians in the room? No Canadians?

Darrin D. Peller - Barclays Capital, Research Division

I think there's one behind there.

Edward J. Heffernan

Where? Where are you from?

Unknown Attendee

Toronto.

Edward J. Heffernan

Attaboy. All right. Do you have our card? Say yes.

Where is he? He's a Canadian, he's hiding in -- oh how are you doing, man?

Unknown Attendee

[indiscernible]

Darrin D. Peller - Barclays Capital, Research Division

In the back.

Edward J. Heffernan

Oh okay. The program itself, we'd like to grow issuance about 5% a year and that will drive our top line, 6%, 7% organically every year, which is pretty good after 22 years. It also will tend to drive double-digit growth on EBITDA. So the program does about $0.25 billion or so a year in EBITDA. What we expect to see this year is you're going to be slightly below that in terms of issuance because of the weakness, we think, on the consumer side, and in fact, because of the strong push last year from some changes in the program, you'll have negative issuance in the first quarter. That will begin to flatten on the second and then flip positive Q3, Q4, so which you get most of the way back, but it's going to play out a little bit funny as the year flows through. So that's what we'd look for on the issuance side. Overall, we like to have, in any year, roughly the issuance to be higher than those miles being redeemed. And specifically, we like a redemption rate of about 70%. Typically, Q1 spikes to about 90-ish-type-percent and then it goes down to 68% by the end of the year and that's what we would expect this year as well.

Darrin D. Peller - Barclays Capital, Research Division

And what about Brazil? I mean, that's been a very big effort for you guys in terms of really investing in dots and transitioning the skills that you had in Canada there, make that a great emerging market for yourselves. I think you own 38% of that business now, is that right?

Edward J. Heffernan

37%.

Darrin D. Peller - Barclays Capital, Research Division

And so will we see that go above 50% this year?

Edward J. Heffernan

I don't know. I would say we're focused on the following things to check the box. The first is we want to get the membership up to roughly 10 million by the end of the year. We're right around 7 million today. To put it in perspective, Canada, does $0.25 billion of EBITDA, with 10 million members. In Brazil, because of spending differences, we're going to need about 2x to 2.5x that amount to do a $0.25 billion, so we should be well on our way by the end of this year, so that's 1 goalpost. The next is we want to roll into between 4 and 5 new regions in Brazil, one of which is Rio. That's another check the box. Third is we need to make sure that our anchor sponsor, which is Banco do Brasil, renews for a long-term contract, I think that's in very good shape. But until I see ink, it doesn't get the box checked. When all that stuff is done, then we'll talk about taking up equity stakes and whether it makes sense or not. But our focus is to make sure we check the box on those things and then we'll focus on the next step.

Darrin D. Peller - Barclays Capital, Research Division

All right. And then last thing on Epsilon, it sounds like the first quarter is shaping up well, which we knew we had some sort of coming out of a tougher year last year, really. And then when you think about what's changed there, number one, you've bought more sort of agency marketing firms and you're trying to integrate it really and try to get a better offering for clients in more of a holistic way for larger clients as well. How is that effort going? And is that something that you see as an opportunity?

Edward J. Heffernan

Yes, we -- the missing piece at Epsilon was we saw that the market was shifting away from building these massive databases for customer acquisition, customer loyalty, customer retention, where essentially you're sitting there saying, "We've got the best technology, we've got the best engineers in the marketplace." And what we were finding is the dollars that were going into these projects started to shift away from the technology side of a company and more towards the Chief Marketing Officer. Again, you're hearing this theme over and over from me of the CMO is getting more and more juice when it comes to where the dollars go. And as that happened, we were at risk of not having the right C-suite relationship. And so we did a pivot, as I called it, and we picked up some digital agencies. And I think when the rankings come out, we'll probably be 1 or 2 in terms of the largest digital agencies in the country. That allows us to have that relationship in the C-suite in the right spot to CMO. And so what we're hoping to do is we'll marry the digital agency, which would be the folks who have the relationship, can do the creative, come up with what the loyalty program should be or what the campaign should be, help create it and then pass that along to the folks who build the big databases, also at Epsilon. Also utilizing the demographic, psychographic data asset that we have and doing the analytics and doing the distribution. So everything from creative to content to distribution is going to be housed in industry verticals within Epsilon. So it will be a classic case of you come to us, you get everything taken care of. Or the CMO can say, I only want creative or I only want database or I only want data. That brings you to a series of other folks out in the marketplace where the only ones that will cut through and offer the one throat to choke. In the end, if it works, it means that Epsilon goes from a high single-digit organic growth machine to certainly in the double-digits organic growth. We won't know until the latter part of this year whether we're getting some traction there. It certainly seems to be the place to be. So, so far so good at Epsilon and we would expect a very strong year for them this year.

Darrin D. Peller - Barclays Capital, Research Division

Okay. Great. We're going to open it up to questions in a moment. While we're gathering questions, just 1 last 1 on the guidance. Your guidance calls for certain types of growth with underlying assumptions around credit quality being relatively stable to where it is now in terms of charge-off levels or where it was really at the end of last year. With portfolio growth being sort of decelerating, really back to the high single-digits is what we talked about as underlying assumptions for that growth rate. And your share count, aside from the economic shares coming out, is relatively unchanged in terms of what we expect. Yet, time and again, we've seen your portfolio outpace that, we're seeing charge-offs get better, and as we discussed earlier, there's a material cushion on reserves. And you probably bought back stock every year since I've -- we've known you guys to a very significant extent. So when you put all those variables together, I mean, what is the element of conservatism? If you ranked those, where do you think you're most conservative on your outlook for 2013?

Edward J. Heffernan

I like our guidance. It makes a lot of sense to me, and if we're going to update guidance, we'll do it on the earnings call. But I guess the only thing I could say is, as you get to know us, you will hear that there is an upward bias to the numbers, is about all, I think, I could say at this point.

Darrin D. Peller - Barclays Capital, Research Division

Okay. If there's any questions in the audience, we're happy to take right now.

Unknown Attendee

Ed, just a question for you, we've heard a lot, I'm sure we'll continue to hear a lot over the next day or so, around implications from the Visa [indiscernible] partnership. And in a sense, Chase is really doing is kind of licensing Visa's network to kind of create their own private label network with certain merchants. Just in terms of -- I wanted to get your thoughts in terms of how you think that could enable them to potentially compete with Private Label card issuers and how ADS is able to maintain its sense of differentiation versus that?

Edward J. Heffernan

Yes. It's a great question. And I'll just shoot from the hip from what I know but the ability to create an on us network for significant chunk of transactions is obviously something that a lot of folks have been after for quite some time and very few have the wallet share or market share on both sides to play. I would say, the thing that strikes me is the fact that it will certainly -- it should be a positive from an expense perspective in terms of operating expenses. And the question is, those savings, will they accrue to the merchant and therefore, will it drive the potential to expand the merchant base to the detriment of other merchant acquirers out there? Or will it accrue just to the bank and they'll flow it through the bottom line? Or will it accrue to better rewards on the card for the cardholders? Don't know which way they're going but that, to me, is the benefit that transaction, which makes a lot of sense. In terms of creating a on us loop or closed loop, that by itself doesn't mean anything when it comes to the data. And that, I think, is probably one of the biggest misperceptions that's out there is it doesn't matter whether it's an open loop or closed loop. It helps if it's a closed loop but unless you actually are building the final leg, which is from your network into the inventory system of the merchant, it doesn't do you any good at all. So it doesn't seem like that's the type of situation where they're going to step back and try to start building all these interfaces into all these merchants, millions of merchants, when I know we have a whopping 110 merchants and it is a lot of work to build that interface, pull out the SKU level, marry it to the transaction and the cardholder and then do all the segmentation and marketing. We have 110 that we've built up over 15, 20 years, and it is a lot of work. So I don't think that the merchant is going to be standing there saying, please take my information. I think that would be a tough putt, to be quite frank. So I think that the main purpose that I would see would be on the expense side is my opinion.

Darrin D. Peller - Barclays Capital, Research Division

Any other questions? One in the front.

Edward J. Heffernan

Yes, Adam.

Unknown Attendee

When you run a loyalty program for, say, Walgreens, with the Epsilon division, do you get, for the SKU level data, with those programs as well? Or is it just in the Private Label piece?

Edward J. Heffernan

Good question. It depends what the client wants. So let me take an easier example of -- take the program in Canada, which has a number of coalition partners, each contributing to a common database. In that case, that database, which anyone in that coalition can access, does not go down to SKU. However, within each of those coalition databases, for example, the grocers would come to us and say, "Hey, could you do the additional step and link in to our inventory system and pull SKU?" And we would do that and use that only for the benefit of that grocer. So again, if the client wants us to do that, we'll do it. And sometimes they do. Oftentimes, they just want more of a plain vanilla loyalty program. So it all depends on what they want.

Darrin D. Peller - Barclays Capital, Research Division

There's a question over here.

Unknown Attendee

Is there an opportunity for you in prepaid debit cards?

Edward J. Heffernan

Prepaid debit. I don't think so. I don't -- I probably don't know. I'm not smart enough to figure out how to link the actual name because it's prepaid debit, like a gift card, right? You don't really know who's using the card. Is that right? I think. So if I don't have the name and who's using the card and I'm not the issuer, it would be a challenge for us. In a general debit environment, the challenge would be how do you create a loyalty program, given -- in other words, who's going to pay for it, right? Because it's a lot different than in a credit side where you have a lot more room to actually come up with a meaningful loyalty program. So no.

Darrin D. Peller - Barclays Capital, Research Division

Okay. I think we're -- maybe one last question on the front.

Unknown Attendee

You mentioned big data and big data analytics becoming more and more relevant. How much of a challenge is it to be -- hiring the right developers versus the competition?

Edward J. Heffernan

Yes. I said big data and everything else becoming more relevant, it's certainly getting a lot more airtime, that's for sure. I don't think big data is anything new other than you're marrying a lot of demographics, psychographic data often from the offline world to trying to match it to attributes in the online world. So it's a relatively new concept but it's -- people have been working on this for years. In terms of the workforce, we at Alliance, we have 11,000 employees. We are growing roughly 1,000 employees a year. We have made the decision to be fully onshore because that's what our clients want and will pay for. And so we are limited to the North American market right now. What we are finding is that there are certain positions on the technical side that are getting harder and harder to find qualified people for. Therefore, we're requiring to open offices and maintain offices in all the big metropolitan areas. We can no longer keep one massive site where we're going to have all the developers. So we're actually trying to figure out how to make it all work, having folks in New York and Boston and Chicago and San Fran, and LA, and Dallas, and places like that. So the talent is out there. It is a competitive marketplace. The things that you wouldn't normally think about are becoming more and more important to the people we're hiring, specifically, defining your career path for these folks, offering healthcare benefits, which is getting more and more press these days, and with 11,000 folks, it is a big, big issue for a lot of companies, including ourselves, because those costs are going up and people don't want to be pushed off to an exchange. So what we're saying is the package at Alliance is you've got a track record with the company that's been around a long time, has shown growth, has shown the ability to therefore allow people to move up in the organization and that's basically our appeal and we're fighting against some of the big pure online players for talent. So it is a competitive marketplace on that side. So far, we seem to be able to fill it.

Darrin D. Peller - Barclays Capital, Research Division

Great. Ed, thank you very much.

Edward J. Heffernan

Thank you.

Darrin D. Peller - Barclays Capital, Research Division

We're out of time. Why don't me wrap up with the last 3 ARS questions. Number 1, where would you like to see ADS allocate more capital? Tuck-in acquisitions? Number 2, increase ownerships they can dot, which is the Brazilian coalition? Number 3, Private Label portfolio acquisitions? Or number 4, share buybacks. What do you think the answer will be? [indiscernible]

[Voting]

Darrin D. Peller - Barclays Capital, Research Division

Surprise, not share buybacks. Number 3, Private Label portfolio deals. Number 4, what segments do you think provides ADS with the most compelling revenue opportunity over the next 2 to 3 years? Loyalty Solutions, Epsilon, or Private Label credit?

[Voting]

Darrin D. Peller - Barclays Capital, Research Division

You know, last year, we had some very interesting music, Charles was there and it sounded a little too -- it was almost inappropriate. Private Label credit. Okay. And last question, what do you foresee to be the most significant risk or challenge for ADS? Competition, industry regulation, macroeconomic risk or credit quality and long-term pressures on rewards programs profitability?

[Voting]

Darrin D. Peller - Barclays Capital, Research Division

Have your answer at the end. Wow, rewards program profitably. Okay. Ed, thank you, again.

Edward J. Heffernan

All right. Thanks, bud.

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