Good day, ladies and gentlemen, and welcome to your Acxiom Q3 Fiscal Year '12 Earnings Call. [Operator Instructions] And as a reminder, today's conference is being recorded. And now I would like to introduce your host for today, Scott Howe. Scott, please go ahead.

Thank you. Good afternoon, and welcome again to everyone who has joined us on the call. Before I start, I want to call attention to the Investors section of our website, which contains slides that we'll reference in today's discussion. It's a milestone day in some respects for us at Acxiom. With me today for the first time is Warren Jenson, Acxiom's new CFO. Warren is a seasoned and well-respected public company CFO who previously served as CFO to a handful of successful public companies, including Delta Airlines, Amazon and Electronic Arts. His career highlights also include being named twice as one of the best CFOs in America by Institutional Investor Magazine, and one of the Bay Area CFOs of the Year in 2010. Most recently, Warren was Chief Operating Officer of Silver Spring Networks where he had responsibility for both operations and service delivery. Given this background, coupled with earlier experiences at General Electric, I am confident Warren will play a meaningful role in our forward direction and execution. Since Warren joined the team only a few weeks ago, after the close of our most recent quarter, he'll be relatively quiet today. In future, you'll be hearing quite a bit more from Warren as he and I continue the journey of transforming Acxiom's products, client results and business performance. Warren, do you want to say a couple of words here?

Thanks, Scott. I just really want to say hello to everyone. It's really great to be with you and thanks to many of you on the call today for the warm welcome. Over the past couple of weeks, I've been spending my time getting to know the company, our products and our associates. I've also been trying to jump in to our planning process to better understand our fiscal 2013 operating plan. Looking ahead, I'll be working with Scott and the team to execute the strategy he's laid out in order that we, first and foremost, delight our customers and in so doing, also drive shareholder value. You'll hear a lot from me in the coming weeks and quarters ahead but for now, I'll turn it back to Scott.

Thanks, Warren. In addition, I also want to say hello to Nada Stirratt, who is likely listening to today's call. Earlier today, Nada was announced as Acxiom's new Chief Revenue Officer. She will join our organization full time on February 13th and will be based in New York City, where we have a strong concentration of large clients and prospects. I can't tell you how excited I am about having Nada on board. She is considered one of the very top digital sales leaders in the world and is extremely well-known and respected for both her intellect and charisma. Nada's employment history is a roadmap of iconic brands. She worked at AOL in the 90s, helped establish advertising.com a decade ago, later managed field sales for Viacom MTV and was most recently the Chief Revenue Officer at MySpace. Throughout her career, Nada has lived at the intersection of data and marketing, which is just what Acxiom needs as we continue advancing our own transformation as a company. Finally, sitting beside me this afternoon are Art Kellam, Acxiom Controller; and Jay McCrary, Acxiom Treasurer. As I have before, I want to take a quick moment to thank both Art and Jay. Their expertise and support over the past few months afforded me a wealth of time with which to identify and recruit a world class CFO. We have a lot of information to cover this afternoon. First, we'll discuss our recent earnings release. As we promised in our last call together, we have broken our financial performance in more granular and meaningful business segments that provide greater detail and visibility into both the results we've generated and how we'll manage our business in the future. We'll go through each business in turn. Overall, we experienced strong growth of 16% in non-GAAP…

Thank you, Scott. Today's press release in this call may contain forward-looking statements that are subject to risk and uncertainties that could cause actual results to differ materially from the forward-looking statements. For a detailed description of these risks, please read the Risk Factor section of our public filings and the press release. Acxiom undertakes no obligation to release publicly any revisions to any of our forward-looking statements. A copy of our press release and financial schedules, including any reconciliation of non-GAAP financial measures, is available at acxiom.com. We will also be referencing financial slides on today's call. These slides are available on Acxiom's website and can be accessed by clicking on News and then clicking on the link Today's Press Release. I will now be reviewing selected financial highlights for the quarter. But before I get into the detailed numbers, I'll provide a few high-level observations on the quarter. We were pleased with our free cash flow results, as well as our growth in earnings per share. Our balance sheet continued to improve due to cash generation and ongoing debt reduction. Total revenue was down in the quarter, driven mostly by international operations as the U.S. was relatively flat. Operating margins are improving but were negatively impacted by a few parts of our business that we will highlight. And finally, starting with this release, we are reporting results in segments that we believe will improve transparency into how we operate the business. Now, let me begin with the summary of financial results, which you will see on Page 3 of the slide deck. As we noted in the press release, Acxiom reached an agreement during the quarter to sell our Background Screening business, and as a result, we will be reporting results from continuing operations and discontinued operations separately.…

Thanks, Jay. During our last earnings call, I discussed my initial observations 90 days into the job. These insights were based on meetings with most of our major clients, discussions with hundreds of our Acxiom associates and a deep dive analysis into all elements of our business, including our product roadmaps, customer profitability and satisfaction, historical financial performance and organizational effectiveness. No stone was left unturned. At the end of this period, I was left feeling optimistic. We have 3 fundamental strengths on which to build: excellent and strong client relationships, with 47% coverage of Fortune 500 companies; a sophisticated, passionate and experienced team of associates who really understand our business and, in many cases, have been with Acxiom for decades; and a track record of building strong technology and being an innovator in the database space. Before folks started talking about big data, data security and privacy, or DMPs, Acxiom was pioneering efforts against each topic. This excitement was tempered with a realistic assessment that a brighter future would have to be earned through a lot of hard work. In short, I discovered an organization that needed to move faster, execute better and innovate more frequently. There were no surprises here, and my findings validated my decision to join Acxiom. More specifically, to recap what I told you. First, we need to improve our operational effectiveness. Over the past quarter, we generated $55 million in cash flow, and over the past year, we prepaid $125 million in debt and repurchased $43 million in shares. This demonstrates what we can accomplish with the right focus and leadership. In order to generate consistently better financial performance, we must singularly align the deep expertise of an entire organization behind our strategy and tactical priorities, so that everyone is moving together with speed…

[Operator Instructions] And we'll take our first question from Mark Zgutowicz from Piper Jaffray.

Scott, I was wondering if you could maybe just talk a little bit about the outlook for the Infrastructure Management business. And just a clarification there, my understanding was that the D&B comparisons that have been negatively impacting results anniversaried in the September quarter, this past September quarter, so if you can just maybe clarify that. And then was curious, you had mentioned despite the down in top line mentioned, the positive margin growth you saw there was helped by a new outsourcing contract. So maybe if you can just talk about that new outsourcing contract and what it contributed to revenue and margins in the quarter?

Yes, so first off, any year-on-year comparison in terms of D&B implementation expenses, Mark, I think those are behind us now...

We had mentioned a new ITO outsourcing contract.

Yes. I'll say our focus on our ITO business, as it is with all of our businesses is, first, you cast a spotlight on it. And what we've tried to do in disaggregating our portfolio is to focus on each of the underlying businesses, all of which have some different operating characteristics, different competitive sets and different financial outlooks. And so within each business, we're pushing hard to figure out where are the levers to improve our performance. So that's where we are. That's been a strong cash flow generator for us over the last quarter, and we think that there's continued strength in that business going forward. But beyond that, I don't have a whole lot of specifics for you.

Fair enough. Scott, in terms of the international opportunity, can you just discuss some of the challenges with data gathering outside the U.S.? Obviously, the challenges on a country-by-country basis not as easily accessible as it is here in the States. Maybe how you look at that as challenge, if you do look at that as a challenge, in growth there and how maybe that has influenced the growth that you've seen thus far?

Yes, it is a challenge certainly. Every country has different standards but I kind of look at that, Mark, as an opportunity as well as a challenge. We have 30 years of experience in data security and privacy, and we were the first company to have a Chief Privacy Officer. So the fact that we're really comfortable handling data sets and ensuring customer privacy should actually be a competitive differentiator for us. I think the bigger problem in some of international markets is they're just not hitting at all cylinders and for that, in some respects, we have to look in the mirror. I mean, as I think about international, I think I talked about this before, there's kind of 3 things that we ask ourselves. One, are they growing fast? And check, they are. Two, are our products extensible? And yes, we think they should be. And third, are our clients extensible? And yes, they're telling us that they want to move across international borders. That said, because all of our international businesses are more largely acquisitions, they've kind of evolved in a way such that instead of looking like one holistic international business, they still look too much like 7 different fiefdoms. And we need to snap to a common operating blueprint and a common set of product offerings such that we really get the advantages of having global scale. The second piece of that is ensuring that our teams are working together to extend clients and historically, when I joined the organization, international and domestic sales [indiscernible] client service for a long time, they sat in different parts of the organization. They have different incentives programs and they didn't work well together to identify opportunities in one market that could be extended to other markets. Just by tweaking on incentive compensation programs and realigning the sales teams such that they work together, we think that there's going to be a boost there. But I also say that I think there's some real hard work to do on international markets, in particular looking at our staffing models and level of what's local versus what's globalized. I'm a big believer that when you build a business, you first have to get your unit [ph] economics right, knowing that you had a good baseline business and then you extend off of that. To the extent that some of our international businesses, for whatever reason, aren't healthy, we have some work to do to get them to that place.

And Mark, I want a follow-up. I think your question earlier was probably more on the comment on the onetime project IT -- IT management project, which was about a few million dollars and it was onetime and somewhat unusual for the quarter.

Okay. And I think you mentioned that the results were impacted negatively by a lost contract last year, which I'm assuming was D&B, and I thought we anniversaried that last quarter, if I'm not mistaken.

D&B has been a customer. That was not the customer that we lost last year.

Okay. Fair enough. I just have one final question, Scott. Just in terms of -- you mentioned small profitable customers and curious if you can put some color around sort of the concentration of revenue there and if you look at some of these new R&D initiatives, is that really focused here? I mean it sounds to me like you have opportunity here to really start to scale some of these unprofitable accounts. But maybe you can talk about some of these new R&D initiatives and how and sort of where those are focused specifically?

Yes. At the risk of disclosing way more information than Jay or Warren is going to be comfortable with me disclosing, I'm going to do it anyway, which is one the first things that we did is we did an analysis when we came on board that looked at our client profitability for the marketing data and services business, all 800-plus clients that we have. And now it's the standard kind of 80/20 curve that you see in any business, whereby which, there's a small subset of customers that really are incredibly important customers for us to take care of. Now the good news is, many of them have been with us for decades and they want to do more with us if we continue to extend our capabilities. Conversely, there's also a small, call it, call them mid-tail, if you will, clients that are unprofitable for us. And it's one of the things that you can't [indiscernible] that you can't expect it. And so by casting the spotlight on those unprofitable clients, they have 3 choices. For that tail, we can either raise prices, and in many cases, my hypothesis is that we can, we just -- we haven't. Second, we can change the way we serve those clients, either through our staffing model or as you're referring to, Mark, I think as we develop some of our product there will be elements of that, which are more self-served and thus will work [ph] our service cost. And the third, and the one we don't want to do, is just to part ways with those clients. But I have a pretty simple view, which is unprofitable revenue isn't the kind of revenue that we want. And so as we think about areas for focus, this is where -- whether it be unprofitable clients are unprofitable products or unprofitable markets, those are areas that we're focusing on because we think those are areas for improvement.

And we'll take our next question from Carter Malloy from Stephens.

So first off, appreciate all the color you've given us and certainly the help on the R&D expenses and efficiencies going forward. I know you guys are reluctant to give guidance but could we expect the company to return to growth in the near term or should we sort of be modeling this, the same type of decline here, just to stay conservative?

Yes. Well, I don't think that the double-digit growth rate, but certainly we'll build those into the model in the coming year, Carter, and there's just no way to spin it. Our top line growth over the last couple of years is just disappointing. I will say, though, I think if you dig into the numbers, a more interesting story starts to emerge. And I know you're talking mostly about Marketing and Data Services. But as an example, if you look at the whole marketing data service revenue looks flat but in fact, it was up 2% in the U.S., down 10%, non-U.S. And as Jay alluded to, even in the U.S., there's some mix changes that are masking those trends. That's true in both industries where our growth rates vary by industry. So, financial services were relatively flat. But there were many other industries: consumer, retail, for instance, that vastly outpaced that. But financial services is such a big part of our mix that, that's pulling it down. And there's also a change in our revenue composition. There's a mix issue there where it's the case that some of our more profitable and sophisticated products like analytics have grown faster than some of our more commoditized products, and that's, you see, an inherent improvement in our margins as well. So not all revenue is created equal. We want to grow the most profitable revenue faster than the less profitable revenue. But that said, that's a recipe for increasing top line growth. While we think it's going to take some time, but let me say that even before we make product enhancements or increase our level of intellectual leadership, I think it starts with management leadership. And so to that end, the ability to bring someone of Nada's stature to…

I just want to point out one quick thing, Carter. I know Q3 is kind of a tough comp, but for year-to-date in both the U.S. and international marketing services, I mean, we're growing approximately 5%, which is good or better as some of the past previous years.

That's all very helpful. And then...

And Carter, may I put aside, before you ask me your next question. I'd like to know who you're picking in the Super Bowl, because I did read your earnings note earlier this week. It didn't escape me that you said that you project us to spend $30 million on R&D next year, which is I think the same guidance I just gave you back.

Lucky dice roll, man. That's all that was. So as you guys look out on mix, and you talked about mix a little bit being a negative effect, can you tell us what the other segment is, why the decision to break that out, a little bit more just on what actually risk and fulfillment are, if they matter, if it's something your reviewing and that's why you broke it out, just any sort of color or direction you can give us there would be helpful?

Yes, the other services segments are U.S. fulfillment...

U.K. fulfillment and our risk business.

In fulfillment, do you mean e-mail or do you mean print?

E-mail for U.S.

In international it includes our call center and pretouch [ph] that also has a print element to it.

Okay. So if I were to take what you stated about your e-mail being placed in the other and couple that up with some of your statements around the Forrester wave [ph] recently, I think that'll give me some indication of the outlook there?

I've said throughout that at our core, we're about managing complex databases, right? And our marketing clients have a dizzying array of fulfillment partners that they use and they're tied to the array of things they do: e-mail, search, banner, et cetera. I have a simple philosophy, which is, it's really difficult to compete in every single tactic, because that essentially has us operating in multiple different business against many different competitors. Yes, maybe Google can do that but Acxiom quite frankly cannot. So we're focusing on collecting data mining [ph], enabling those partners and for the most part, that's what our clients value. That's why they've worked with us for the last 30 years and that's what they want to have us continue to build. We'll continue to offer e-mail fulfillment and agency services to those clients who want a one-stop shop, but for those clients who don't, for those clients who want to choose the best of breed as partner, we're going to let them do that and our focus instead will be on providing the data and the intelligence that enables whatever partner a client wants to choose.

Okay. Understood and appreciate the color as well. And then lastly, you're not going to want to do it, but maybe if you could describe to us one new product that's on the map over the next couple of years, something you think is a lay up for action without giving away your competitive secret sauce.

Sure. Broadly, I will give you the real throwaway because I think the entire world knows we're doing this. But we've talked, for instance, a lot about enablement [ph] of partners. And so part of what we need to do is our clients are asking us to enable the partners that they work with and so we're really focusing on building legions of ATIs such that other industry participants can access clients' data and use that to manage clients' marketing tactics. I won't say that this is the sexiest area but when I think about what our clients really want, they want a single intelligence system that drives all of their efforts. And so in order to be that single intelligence system, we need to work with a much broader array of industry participants.

In that case, are you charging the industry participants or your clients for the API and ability to port [ph] in there?

Yes. It varies. We're still working on the pricing models for that. I would say for the near-term, the vast majority of our revenue is going to be from direct clients as it has been historically.

And our next question is coming from Dan Salmon from BMO Capital Markets.

It sounds, Scott, from -- you've got still, it sounds like sort of 4 key executives at the top, including yourself, but a little bit of shift in roles towards you mentioning filling a Chief Product Officer. Will that sort of imply that perhaps Warren would have a bit more of an operational role, I think, with his background places like Amazon and previously, you saw from the CFO and just, generally, how you expect the sort of sea level to be sort of realigned here. And then just secondly, we've talked a bit about ITO and update us on any thoughts you're thinking around strategic options for that business long-term.

Yes, so first off, I think your question's a smart one. I think you kind of nailed with how you asked it. I have a simple view, either build stuff, you sell it or you improve it, right? When I think about the Chief Product Officer, that is all about building better products. When I think about Nada's role as Chief Revenue Officer, it's ensuring that we're absolutely brilliant in how we market to clients, how we sell them, how we service them. And then Warren, his task, in addition to being a world class CFO, he's also a proven operator. So I feel like he is a great partner to all of our business and sales leaders ask the hard questions around, how can we be better? So you have, I think, it's as simple as that. What I tried to do when I came on board is to simplify everything, how we talk about ourselves to clients, what we're building, our businesses, all of those things. But that starts with how we're [ph] structured. So you build it, you sell it or you measure it and improve it. And then on ITO, I think I understand what your real question is there because, particularly given recent divestiture of the securities screening business, I think you're asking, is that business for sale. Because that's the question that I get about a whole lot of our businesses, probably the most common question I get is, is blank for sale. And so I'll tell you whatever blank is, including Marketing and Data Services, the short answer is yes. As a public company, we're always on sale. If someone makes us a reasonable offer, it's our duty to at least listen. But 2 things are true, two things are true, and the…

And we'll go to our next question from Dan Leben from Robert W. Baird.

First one, a couple for Jay here on the infrastructure management business, the margin bump this quarter, how much of that was due to the onetime project versus some of the efficiencies of getting some of these projects up and running that you had some expense with previously?

As we talked about, we have cycled the D&B efficiencies we talked about previously but a lot of it was the onetime project. The onetime project was highly profitable.

Okay. And then on the marketing business, you mentioned that growth rate for the year is 5%. We've kind of come from 10% to 5% to 0. Help us understand what the international versus the U.S. has looked like in the last 3 quarters as the segment's reported today.

For marketing data services?

Yes.

They're both approximately 5% for the last 3 quarters, for the 9 months year-to-date, both the U.S. and international.

So in the first 2 quarters, both segments were growing 5% or has there been a pretty divergent performance between the 2?

There's been a pretty consistent performance between the 2. The real dropoff was this quarter from international perspective, we had a significant dropoff in revenue.

And then the $30 million investment in product, is that -- should we think about that as the P&L impact or the cash basis and some of that's going to be capitalized?

I think from our perspective, there will be a portion of it will be capitalized. I think you need to -- the majority of it is probably going to go through the P&L.

And then one quick one for Warren, if you're still on the line, just if we could get your views as you come into Acxiom, kind of early takes on the financial and reporting structure in place at Acxiom and your views that you developed over time on how you want to think about providing guidance.

Just let me mention a couple of things what I've been up to is I've pretty much tried to spend my time over the past few weeks of really just getting to know the business, getting to know our associates and getting to know our products. As I think about our priorities, I really very strongly feel that the things Scott has outlined are exactly the right things for us to focus on. So what I'm trying to do, working with the finance team and my operational partners is just make sure that we've got the best focused reporting that really focuses on the signals and then eliminates the noise, makes us get out and nail those things that are important for our accomplishing all of the objectives. On the finance side to your question, I feel very fortunate to have a couple of great partners with Art and Jay and the whole team. I think the company's in great shape. They've got a great team. Everybody's very energized, very much focused on accomplishing the goals that Scott's laid out.

And our final question coming from Todd Van Fleet from First Analysis.

Jay, first, I apologize if I missed it but what was the forex impact on international in the quarter?

It was negligible, about $100,000.

Okay. Scott, I guess, a couple, you said that there's a small group or group of customers that are currently unprofitable. Are these the types of relationships that are unprofitable at the gross profit level or is it going down kind of, is it kind of at the operating margin level, because I'm just thinking about the ability for Acxiom to really adjust this expense structure should it decide to have to walk away from those relationships at some point.

Yes, that's a good question. I'm reporting back -- I think maybe out of I think we did it before corporate overhead allocation. But I would almost have to loop back with you on that to confirm. I mean irrespective though, it just changes, it changes the absolute value because those corporate overhead allocations are largely based on percentage of revenue. So if they're not profitable because of corporate overhead, we should have just had a higher price to account for that corporate overhead. But I mean we've all -- I don't want to throw any clients under the bus, but we've all seen this in the client service business, where it's the squeaky wheel get's the grease and oftentimes your staffing model isn't around who are your biggest clients but it's about just having a client. So oftentimes, folks that don't generate a whole lot of revenue tend to suck up a lot of time. And so you got to think about do you serve them exactly the same way, there's a chance to grow the top line because it's our first experience with that client and that's one thing. If it's a client that's been with us for 5 years and has consistently been an unprofitable client and hasn't grown its spend, then we got to ask ourselves, are we serving this client in the right way? And there's a little bit of a work to be done there. There's no formula. The only way you ever get out of this is by casting the spotlight. It's through account planning. So it's client by client, the first nuance [ph] that, that client, they know that they own the profitability or lack thereof with the client and essentially, in our sales teams, in our field teams, we have hundreds of individuals, call them General Managers and they own their own P&L. And so we've got to work with them to figure out, well, how do we change the shape of their client P&L.

I guess looking at the disclosures that you made here in the quarter, I mean, are these companies kind of across the company that is in the various segments, marketing data services or is it kind of primarily international and then in the risk area?

Probably, we can do that, call it, profitability curve. In any one of our businesses and I would venture any one of our competitors, I would say all of this looks pretty much the same. The question is, is your bottom quartile unprofitable or are they just less profitable? And then if you can get them from unprofitable to less profitable in the median, that's a major accomplishment. And once you get them to less profitable, then you look through your bottom quartile and you say, how can we get it another step up? But it's that kind of -- it's that kind of attention to detail around constant optimization, kind of what we do for our clients, right? You know there's only that campaign [indiscernible] and all of a sudden overnight, it's all unicorns and rainbows. Rather, you do it one step at a time and in constant test control, test refined, and [indiscernible] with the clients that every quarter you say, "How can I improve the profitability this quarter a little bit? How can I move them up to the next quartile?" Then you do it again. So kind of harbinger of things to come for our field organization, no matter how much progress they make, I'll always say it's not good enough and now we've got to take the next step.

Maybe one last one, on the core Marketing and Data Services business, as I look at the U.S. revenue, 1.8% growth year-over-year, I guess it probably declined on a sequential basis. Is that right for that segment?

Yes, it is.

What's the impediment -- what's keeping that segment in particular, the U.S. segment, from growing mid-to upper single digits? I mean is it because of these investments are required to capture more of the wallet from your partners and the areas that you're asking -- that they're asking you to move into? Is that there just -- there's wallet out there that you're just simply not capturing right now and the share wallet that you are getting is effectively diminishing because it's primarily the offline world that you're servicing rather than the online world? I mean is that -- why isn't that business segment performing better from a growth perspective?

You're asking about just kind of the same store clients, is that right? No sequential client growth?

Yes. I mean, you could incorporate, I guess, some new client activity but, yes, same store -- I would have to assume that same store, things are declining, but again, I don't want to make too many assumptions.

I mean for same-store, the big story there is product innovation. The area of growth, when I look at the overall market trend kind of traditional database side is a lot to grow in those single digit [indiscernible]. The digital marketing side, which is far away, kind of new digital entrants, that call themselves DMPs, that's growing in high double digits. And so our clients are looking to us there and says, we don't want -- a database is a database is a database. We don't want to have multiple providers. We want work [ph]. We want one source of truth, one way, one method of accounting across all the things we do and if they're working with Acxiom in traditional, they want us to be their digital capability as well. And we think that's a big opportunity across our client base but with all our clients, we've already taken steps there. We've developed some beta products that allow us to do so there. But this is what I'm talking about in terms of design for the highest common denominator such that whatever we create, it is customized for one client or for a half a dozen clients but can be deployed across all of our clients. We think it's a significant need there. And with new clients, it's that and it also just making sure that we're calling on those clients, that we're bringing innovative ideas and switching in our space is hard. It's hard to do. Switching costs are fairly significant and so the conversations that we've been having over the last quarter in many cases won't materialize in the business until 6 to 9 months from now. So that is just a matter of staying with it, always bringing good ideas. To give you an example from my very distant past, years ago, I was working with a quarter [ph] and we're trying to win Weight Watchers as a client and they were using another agency and we kept calling on them and calling on them and calling on them and finally after 9 months, we wore them down and they said, "The key thing here was that you're working with all their [ph] client business, with our incumbent agency, who we pay a lot of money to and we were [indiscernible]." So that kind of cadence of always bringing good ideas, great case studies and [indiscernible] products that ultimately gets someone across the line and causes them to switch, and we got to continue to be doing that. All right. I think that's it. Thanks, everybody for participating in the call and look forward to doing this again in 3 months' time.

Okay. Ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.