[Call Starts Abruptly] …double digit growth in revenue and adjusted EBITDA for both LoyaltyOne and Card Services and returned to positive revenue growth at Epsilon and stable FX rates. Another positive during the quarter was the opportunity to acquire earlier than scheduled the remaining 20% ownership in BrandLoyalty. It made sense to us as the company’s performance has exceeded all of our expectations and the opportunity in North America looks very compelling. Accordingly, we acquired the remaining interest effective April 1, 2016 for approximately $259 million in consideration which was funded by up-stocking BrandLoyalty’s credit facility. Now the accounting is a little unique because the remaining ownership was purchased prior to the 10% tranches scheduled for January ’17 and January ’18 the consideration paid exceeded the churning value of the redeemable, non-controlling interest on the balance sheet which would have increased over the next year and half to roughly equal the purchase price paid. The difference of $68 million is an immediate charge to retain earnings on the balance sheet, but nonetheless is considered in the calculation of EPS, which was reduced by $1.14. Excluding this charge, EPS increased 13% for the second quarter. What does the early acquisition means to ADS? From the revenue standpoint, nothing, as we already consolidated 100% of BrandLoyalty’s revenue. From a profitability standpoint, it will add a few cents to our EPS and our core EPS for 2016. Turning to the repurchase program, we’ve acquired approximately 2.6 million shares under a repurchase program year to date. We’ve approximately 460 million of our board authorization left which we expect to use somewhat ratably over the remainder of 2016. Let's go to Page 3, and talk about LolaltyOne. LolaltyOne had a very strong second quarter as revenue increased 17% to $352 million and adjusted EBITDA increased…

Thank you Charles. Good morning everyone. Turning now to Page 5, I am so pleased to highlight that the card services business had another quarter of strong performance, delivering the 18th consecutive quarter of double digit revenue growth. Revenues are up 25% over last year, translating to a 10% increase in adjusted EBITDA net of funding cost. Let's turn now to Page 6 and go over some of the key drivers of the strong performance first. Credit sales were up 18% resulting in year-over-year tender share gains of 180 basis points were measurable. Now each quarter you hear us comment on tender share and we do so because it really is a fundamental metric to the success of our program and what may be helpful contacts here is these tender share gain we reference come from our legacy programs and do not include any gains from our newer card program. Put differently the tender share gains we reference are a result of increasing the number of trip spend and card member retention from those card programs with us prior to 2013. Importantly the average tenure of our 12 month active shopper is 5 years and the sales distribution of our most tenured card members has been remarkably stable for four years, and I mentioned this because these are highly seasoned relationships and as such we have great visibility into their past behavior and that allows us to accurately predict how our card members will behave in the future. These gains are not a result of any widening, loosening of lessening of our credit standards and this consistent increase in tender share is really a result of that data driven targeted marketing no more sell more brand promise and the increases here are certainly a signal of card members’ growing engagement…

Great thanks Melisa. Why don’t we turn to the second quarter store card, we will try to wrap this up as neatly as we can. And we’re going with the color coated circles on the left, we are looking for more green than other colors, that would be a good thing, and as we are midway through the year it looks like we are heading in the right direction, so to sort of sum it up, on a consolidated basis 1.75 billion and revs up 17%, 368 on EPS up 11%, I think for those of you who have been hearing Charles and I talked about how the year would play out. We talked about a Q1 sort of plus five top, plus five bottom, then Q2 moving to eight and eight and then eventually double digit in the back half. The fact that we are at 17 in Q2 and 11 on the bottom in Q2 as well, essentially means that we’ve pulled -- we’re running ahead by a quarter. So essentially the back half has been accelerated and that’s essentially what you are seeing in Q2. We had some signs that things were accelerating, but of course we wanted to be a little bit more careful until it actually played through. So I think the easiest way to look at the quarter is, it’s not unexpected that we are running at double digit, what was on expected is that we are running a double digit this early in the years. So, that certainly takes the risk out of the back half of the year. We’re nicely ahead of guidance and in fact we feel comfortable raising guidance at this point for the year. As Charles mentioned the buyback, we’re about halfway through and the year is about halfway…

[Operator Instructions] Your first question comes from David Togut with Evercore ISI.

Thank you. Good morning and nice to see the strong second quarter results and the increased outlook for the year. Melisa appreciate the helpful insights into Card Services, with credit top of mind, could you just remind us what the FICO score ranges are for your customer base? And how these are trending with new customer additions?

The situation David we really don’t look it at that way. The underwriting that we do is a combination of internal proprietary data that we use plus euros that we pull as well. So it's really a combination we use. If you think about the underwriting David, we have been using the same approach since the early 90s, so it's a very mature, it’s part of our secret sauce. So it's not a case where we purely rely on euros, so it's more of a case we use our internal data which is as you know extensive to really find the universe of consumers that meet our profile but they’re also a little bit different. Part of the reason we get the growth rates we do. So I would say it's what we’ve always said before, we don’t target subprime, we are going for a prime consumer. But we don’t really rely upon bureaus as 100% underwriting.

And David if I can just add on top of that we have invested pretty significantly in tools that allow us to look at data sources even beyond that which would be our standard either from other outside sources or that which we have internally. And we believe that combination is a bit of our secret sauce. It allows us to welcome as many card members to the program that will actually pay us back but also are really accretive to our brand partners.

Understood. Just shifting gears, ValueAct recently increased its stake to 6.8% of ADS and they spelled out some objectives in a press release. Can you enlighten us about your dialogue with ValueAct and where you think that will go overtime?

Sure, I certainly read the press release. I would say that what we can say is that they have known us extremely well for probably a decade and they have been quite savvy with their bets over the past decade. The initial discussions we have had were similar to the discussion we will have with any potential large investor, which is, tell us about the business, the plans, the future and the believe is just what they said that they think it’s a good value and they think that the noise around the whole credit and how it's going to impact us in everything else is overdone. And that’s what we’ve been told in terms of their position. Anything else frankly, I believe they have to file certain papers if they decide to do something else. But frankly that’s all we know at this point.

Understood. Just finally just wanted to confirm that you are reaffirming your free cash flow guidance for the year?

Yes.

Okay. So 1.4 billion?

Yes.

Thank you very much.

Your next question comes from Sanjay Sakhrani with KBW.

Thank you, good morning, and good results. Quick question on some of the initiatives around Epsilon, redirecting the digital agency towards mid-agencies and the alike, how long do you think this takes to really assess whether or not they work or not?

Yes, I mean it's -- what we are seeing on that small piece in the agency side is that the traditional clients we had, the real big agencies have taken a lot of that work in house, right. Because the goal of that part of the business was originally to go out and find inventory and appropriate inventory where we could place the various advertisements and messaging. And so as that has happened and programmatic trading and everything else was come into play, what we’re looking at and where we think there is a big opportunity is, there is a lot of clients out there who love the huge CRM type offering that requires them to give us the SKU level information, both online, offline. We take that. We churn it through the big machines. We find the right patterns. We go out and place those with the appropriate folks out in the digital space. But there is also we believe a huge chunk of folks, clients out there who don’t necessarily want or need the whole suit to nuts that we offer with big CRM as we call it. So I am going to call it CRM light, which is where you’ll use some data. So for example a client may just say look, I am having a big sale, it’s going to be in the southeast region of the country. I want to go out and I want to find those folks who’re most likely to visit, here is my email list. Could you go out, use that data and let everyone know that’s appropriate about the sale and what’s going on? And that’s a much smaller commitment from the client. And we think that’s a good way to get them in the door and hopefully eventually upsell to big CRMs. So the long winded answer is if we can do that along with our partners at let's say the mid-tier agencies who can afford to build these massive trading platforms, programmatic type platforms that this could be a nice winner and a nice feeder as well into big CRM. We’ve already started the retraining of our agency sales folks into CRM and so we expect this thing to start taking route really towards the back half of the year. So, hopefully we’ll see some results before we exit this year.

And then I guess I have a second question on private label, and maybe it's for Melisa and all of you all. There is obviously always chatter about large renewals for all of the big private label issuers and you guys included. But can you just conceptually talk about your confidence in retaining some of your larger customers as they’ve grown with you plus anecdotally maybe you could just talk about if any of those sales, the sales lift commentary that Melisa had still applied to these big relationships as your relationship has evolved?

Sanjay, good morning, I am glad you asked that question because the sales gains that we talk about are really from those legacy programs. And candidly we have a high degree of confidence that we will retain those partners where we’re like mind and where they view the card program as the ultimate loyalty tool where we’re both making joint investments into the program. Candidly tender share increases, increasing spend and retention is really how our partners measure us and it's the report card that we have for ourselves. So we would tell you this that we have a 100% track record of retaining those important brand partners where we are aligned on the goals of the program and we intent to approach the future just the same way that we’ve approached the past.

Your next question comes from Darrin Peller with Barclays.

Just want to start off with guidance if you don’t mind, it’s good to see you’ve been on the quarter and raised for the full year by that beat. But just understanding the timing around the quarterly cadence now, your third quarter guidance suggests sequential increase in third to fourth quarter to me your full year, which I think is a little bit more of a ramp than we had initially expected given fourth quarter often has a drag from reserve builds. So can you just give us some color on what the dynamic is between third and fourth quarter EPS in terms of the pick up?

Again a lot it comes to timing, I would say some of it is going to be driven by BrandLoyalty. The BrandLoyalty you saw with its revenue down 10% in Q1 and up 40% Q2, it will likely draw to maybe negative Q3 within big pop in Q4. As you know that BrandLoyalty is a high fix cost structure, so with its revenue ramps you get a nice flow through to earnings. It’s just items like that that have that influence. The CRM business with Conversant, it is very much back half driven around the holiday season, you can get nice ramp. So Darrin it's not one single factor, it's just a number of factors that drive the growth you are looking sequentially Q3, Q4.

Okay, all right thanks. And just I guess I want to follow up to some of the questions around the private label of card services business. Specifically in a metrics that got better here more than expected, I mean the yield in particular -- I know there were some nuances on how you are seeing some of the program and the way you charge for and time payments. Just explain in a little more detail if you don’t mind and how that got better versus your expectations? And then if that trend should continue going forward, what's going to drive that along with maybe just from a really just touch on credit quality one last time, given how many questions all of us have gotten around. It seem fine, but is there anything you seeing, in any of the delinquency buckets that are any different at all, maybe either you or Melisa can determine? Thanks.

Yes Darrin, I’ll go ahead and answer the question if I can in reverse order. With respect to the consumer behavior, candidly we are just not seeing the distress in terms of her payment behavior and her shopping behavior that others have discuss. Now she is shopping differently and she is spending differently. And part of advantage that we have here is as you know, we have diversified our portfolio a bit. So apparel seems to be the area where we see some weakness. But in terms of her payments behavior and her relationship with us, we have great visibility into where she's been and great visibility into how she's going to continue to behave with us. So again we feel very comfortable with meeting guidance for the year. With respect to what has changed from the end of last year, recall that we did make some program changes and the risk mix -- excuse me the vintage mix of our new partners was also influencing what those yields looked like and simply as Ed said we are ahead a quarter, the burn in and the normalization just happened sooner than we expected. And again with very good visibility into what the future looks like, we feel very-very good about meeting that guidance.

I want to hit the credit thing because there is seems to be so much chattered out there that is maybe helpful to put in respective and having been in the business for a thousand years here going back to the 90s and the various cycles to where we are today, I think probably the biggest stress test that anyone has ever faced was the great recession. And in the great recession what actually happened was that even though private label tends to -- and always has run a point or so above loss rates in sort of the general purpose arena. What actually happened in the great recession is we performed a lot better than the general purpose cards. And so when it really hit the fan the general purpose cards, those portfolios went from 4%, 5% to 10% or 11% loss rates, I mean on a 600 basis points, we went up 300. And the reason behind that is why I guess we don’t share the concern that others do about private label and everything else is the fact that for sure, it's the card that doesn’t have utilization of a general purpose card the best great in terms of when times get stretched because of the fact that you do not have a big open or buy line and you do not have the ability to go use it to buy food and put gas in the car and then go bankrupt. So, what you’re seeing is there may be lots of cards out there. But as you go down the credit spectrum you bring down your credit lines. And so you may have a $100 credit line on someone with a thin file. And that ability to manage or open to buying your credit lines across 40 million households is what allowed us to really manage to a very modest hit during the great recession, and that’s why I think we don’t expect to see any spike because we are very active in terms of managing credit lines.

That’s helpful. Just quick follow up and then I’ll turn it back to the queue. On the buyback front, I know there was a lot last quarter, you did the -- you paid out for BrandLoyalty this quarter. Is that why there was a little bit of a slowdown on buybacks, should we expect that to resume next quarter and going forward? Thanks guys.

Obviously we can’t tell exactly what we’re going to do. But it shouldn’t change the general thinking for the year. I would look at it simply as we’re halfway through the year. We’ve spent half the money [Multiple Speakers].

Your next question comes from Ramsey El-Assal with Jefferies.

So you mentioned that you pulled forward the purchase of BrandLoyalty. On the EPS side, what did that add in the quarter and in the guide?

It probably added about $0.03 to the quarter and for the year if they continue to meet expectations, Ramsey, it will probably add an incremental $0.05 compared to what we started the year thinking.

Okay.

And what we’ll do with that Ramsey, is as it comes through on a quarterly basis then you’ll see us flow it through to our guidance.

Got it. On brand loyalty, how should we think about the -- how can I put this as sort of sales cadence or where you’re at in the sales cycle with this program. In other words, especially in North America you seem to have some success in the programs. I mean are you waiting to dial up the sales resources you stack against rolling this program out? Are you still consider yourself in kind of test and learn mode? Or is there some inflection point we should be waiting for when you kind of put the pedal to the medal or is it more just going to be a gradual cross sell or build over time?

I think in North America if you look at where we started, we started up in Canada. Obviously it made sense since we had all those relationships with the big grocers. Pedal is to the metal in Canada and that’s bringing in 40 million, 50 million a year of incremental revenue since we started it probably 18 months ago. So, Canada is fully spooled up. And so you’re left with the U.S. which is 10 times in terms of the market size of Canada, which gets us obviously pretty excited. We were very deliberate in the pilots that we’ve been running. All we can say at this point is that the results were quite good and the results, we expect that the client is hopefully as excited as we are and hopefully we’ll have some bigger news before the end of the year. And that’s that’s unfortunately all we can say at this point, but once that happens then we press the accelerator a little bit more.

Got you. Lastly from me on the regulatory front I heard a little chartered in the quarter about the CFPB looking at differed interest promotions, are there any other acute areas of risk in the business at this point? How are you thinking about regulation over the next call it 12 months to 18 months?

Here is what we would say, we have been thriving in a very heavily regulated environment for many, many years. We obviously stay very close to pending points of view to any actions that are taken out there. For us on the differed side, it is not a significant portion of our business and so we would respond accordingly if there is any feedback that was given. And for us you know next to our partners and our consumers we take all reputation with the regulators very, very seriously. So we build strong relationships and build our business accordingly.

Okay. Thanks for your comments.

The next question comes from Bob Napoli with William Blair.

Melisa, just maybe a follow up on the regulatory question I guess, obviously regulatory has been a big challenge for anybody in a financial services industry and as you guys are getting larger you may have a different regulatory body reviewing you, I mean you may already have that happening. But what are you looking at? What are your -- and are there areas of concern as new regulators, as you grow, take a different look at Alliance Data Systems, is there anything we -- what should we be worried about or concerned about?

So Bob, we would tell you that this growth as you well know has been very purposeful, very planned, like all of the other institutions we have been dramatically strengthening our areas of compliance, compliance management systems and candidly the FDIC and the CFPB have had strong collaboration for some amount of time. The consumer protection laws that are written by the CFPB are currently laws we already abide by and so we feel very good that there shouldn’t be any big surprises. Well there be some nuances to the relationships? Potentially. But sitting here today we don’t expect something large or ominous to come our way.

Okay and then --.

[Multiple Speakers] given to, is given.

Thank you, on the credit side if you look typically cards across the credit card industry, credit weakens in the back half for the year seasonally, I think that’s if you look back historically in ADS it's not necessarily always the case. But is there why -- I mean you are right at your target for the year in the first half of the year with the potential for seasonal weaken in the back half, why are you so confident on hitting your target on the credit side for the year?

Well, there are a couple of things that contribute to that Bob. The first is again as we mentioned these customers that our 12 months active have been with us for many years. So we have great visibility into where she’s been and how she will behave in the future. And for us although some of our brand admittedly are seeing weakness. We generally continue to deliver that three times the brand growth, we saw that play out in Q1 and Q2 and so set differently in times of brand weakness. The card programs are actually the bright spot because they are the most loyal card members. And so this is where that multi-channel approach comes into play, we will talk her more, we will ensure that she has the right motivation to either online or get back into the store. But we are confident in our sales projections for the year.

On the credit side, and I mean on the sales side I mean are you seeing the same payment rates, are you looking -- what are you looking at to give you that very high confidence that you’ll hit your 5% charge off?

Well, what we’re confident in is that we are seeing the delinquency following normal seasonal trends. We are seeing our charge offs follow normal seasonal trends, and no we’re not worried about our payment rates. Our payment rates are commensurate with the balances that our card members carry, so we are not concerned about that.

I think if I could pile on a little bit, essentially delinquency flows how we’re carrying [ph] those delinquency flows, recovery rates, personal bankruptcies, open to buy, all the stuff that goes into figuring out the flow through and the visibility. We’ve been spot on since the guide at the beginning of the year where we gave it by quarter. And based on all the flows we’re seeing, the losses they’re not going up than the back half versus the front half. We’re going to be right at that 5% by the end of the year.

Last question [Multiple Speakers]. A big -- the differentiation of your card business versus your competitors or Synchrony and the marketing side of your business. I thought The Children's Place was a good example. But are you seeing -- when you're talking to potential clients, how often or how important, how would you differentiate yourself? And is your differentiation today the same as it has been in the past and are you seeing competitors invest more in their marketing capabilities to narrow that competitive gap?

Well, it’s certainly a crowded competitive fields right now, Bob and what we would tell you is our newest brand partners as well as our legacy brand partners are our very best selling tools. So if you think about the two examples that I just called out, these are brand new partners that have had very, very long standing programs with other issuers. And so the card member didn’t suddenly change overnight and the brand didn’t suddenly change overnight. What changed perhaps are the new tools that we make available, the way that we move out new value propositions to really resonate with the card members, and candidly the way that we go about segmenting a client customer base so that we can get our back into the store. So, we believe that our history speaks for itself. In all humility we earn business every day. But we have a proven track record of delivering larger, more meaningful programs to the market we serve.

Thank you.

We take one more question.

Your next question comes from Tim Willi with Wells Fargo.

Hopefully I can sneak two in here real quick. First one is, Ed, just going back to the free cash flow and thinking about that nominal number versus how you allocate that and truly what's there for the repurchase program, which you have executed on. But obviously, you're growing the bank and the receivables. And if you look at some of the regulatory reports, you're actually putting capital into one of the banks. So I was just wondering if you could walk through, maybe explain a bit what's going on with the bank capital infusion relative to free cash flow, relative to other priorities for that free cash flow. And then I just had a follow-up on Epsilon real quick.

Yes, I’ll give it to you at a high level and Charles can put any detail that he wants. But at the very high level we -- when I look at capital allocation capital resources for any given year I start with our general definition of EBITDA, net of funding cost, net of corporate interest expense, net of CapEx, you add back sort of the delta between the provision and what our actual cash losses are. And you come up with about 1.4 billion, of that amount if cards is growing the file 3 billion a year or something like that we are going to need 450 million to 500 million of capital to support that. You take that of the 1.4 billion, you are down at 900 and that essentially is what we have to play with, without sort of increasing the leverage a lot. But sort of that 900 is sort of what we play with and that either goes towards buyback or it goes towards M&A. And look, the M&A could be at the bank level with a portfolio, in that case we would keep a little bit more down to bank or it could be M&A for an Epsilon or LoyaltyOne in that case we would upstream it to the parent. So that’s essentially the breakdown of our free cash.

Great, thank you. And then just a quick follow-up on Epsilon, and I apologize if this was addressed earlier. I hopped off. But in terms of that agency business, I think mid or early second quarter, I think there was a study or a paper written by a trade group around the ad agency and the inventory and things of that nature, basically saying there was not a lot of transparency between the big ad agencies and their consumer products, customers in terms of the services they provide in kickbacks and discounts and things like that. It sort of showed a conflict maybe with some of the insourcing that was going on at those big agencies. Again, maybe I'm just going way down the wrong path here, but I'm just curious if that development is something that actually potentially could benefit your agency business even just incrementally as maybe the end customer, that big consumer product Company or whatever says, I need more transparency and objective execution around my services versus just giving it all to you in house. Is there anything there to think about or no?

I would certainly, I think I would just leave it at it does not hurt us, that’s for sure.

Fair enough. That’s all I have thanks.

Okay well thank you everyone. We look forward to a great summer, a good Q3 and a strong end to the year. So thank you and we will talk to you later.

Ladies and gentlemen this concludes today's conference call. You may now disconnect.