Good day, ladies and gentlemen, and welcome to the Acxiom Q4 FY '13 Earnings Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the call over to your host, Jay McCrary, Acxiom's Treasurer. Please go ahead.

Thanks, operator. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2013 fourth quarter and fiscal year results. With me today are Scott Howe, our CEO; and Warren Jenson, our CFO; and Art Kellam, Corporate Controller. Today's press release and this call may contain forward-looking statements that are subject to risks 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 Factors 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. Also during the call today, we will be referring to the slide deck posted on our website. A link is also included in today's press release. At this time, I'll turn the call over to Scott Howe.

Thanks, Jay, and good afternoon, everyone. As we leave Acxiom's fiscal '13 and now head into 2014, I thought it might be useful to give you my perspective on where we are in our journey and where we will go in the months and quarters ahead. From the outset, let me repeat something I said 3 months ago when we last spoke. In that late January call, I mentioned that we were knee-deep in implementation. Well, let me correct that by saying we are neck-deep in implementation. Every day, we are coding new innovation and calling new prospects. Essentially, we're laying the foundation for a more prosperous future. Next, you'll also remember I said in some ways, "This is the hardest time. Our investment spending has ramped materially, but as excited as we are about the products we are creating, we have yet to taste the tangible rewards of meaningful revenue." Well, I was right. Even though our fourth quarter came in as advertised, this is the hardest time, and we certainly felt that this quarter. And as we indicated in our last call, we know that revenue and margin pressure will continue into at least the first half of 2014. So where am I going with all this? While we are by no means perfect in our execution or satisfied with today's current state. We believe that we are on course. Our investment thesis is stronger than ever, and our opportunity is even larger than we had originally imagined. Today, I would like to talk about the strength of our investment thesis and our priorities for the 2014 fiscal year. The Acxiom investment thesis is as follows: first, we are playing from a position of competitive strength. We have strong Marketing and Data Service business with long-standing relationships. We…

Well, thank you, Scott, and good afternoon, everyone. Before commenting on the fourth quarter and fiscal year, I'd like to again update you on our progress related to a few of our initiatives. Following that update, I will lay out our thoughts about where we're headed in fiscal 2014. First, our efforts to run a better business. We leave fiscal 2013 with a robust process in place to measure our business, hold managers accountable and get ahead of trends early. We have also established a long-term target P&L for each of our businesses and expect that our managers not just deliver on the current period, but incorporate initiatives today that will make next year's target possible, too. We believe that these fundamental actions have given us a solid foundation for the future. Next, we are essentially complete in our efforts to make each of our business segments operationally independent. Looking ahead to 2014, let me highlight a few things on which we will be working. First, we will be relentless in our drive to simplify and automate everything we do. As I mentioned in our last call, the customer always comes first, but every day we need to find a better way. This is a high priority for our engineering, delivery and IT teams. You can expect me to update you throughout the year on our progress. Next, we are building our pricing models for our new products. Further, we are also building our operational and back-end systems in order that we have a completely automated way of interacting with our customers and a seamless back-end for reporting and billing. Third, we are going to do a little plumbing. As we worked to build out our target P&L, we discovered that our product hierarchies in coding are a bit confused…

[Operator Instructions] Our first question comes from Carter Malloy with Stephens.

So first is on the Marketing and Data Services slowdown in the U.S., can you give us a little more detail there? And then maybe also behind that a little more detail on the pipe. You said it was up 30%. Does that have any big whales in there that really skew that or is that just across the board?

Carter, I'll start up with where we are for the fourth quarter. I wouldn't look at the fourth quarter so much as a slowdown as we had some big onetime revenues in Q4. We would certainly expect -- and I think as both Scott and I have alluded to, we are looking to grow revenues and we're not satisfied where we are, but the year-over-year comps were impacted by some big onetime project revenue that we had last year. With that, Scott, I'll turn it to you to maybe comment on the pipeline a little bit further.

Yes, on the pipeline, you had mentioned the 30% year-over-year, I would say there aren't any big whales in there. I actually feel real good about the pipeline quality versus a year ago. I think the quality of the stuff that's in there is much more realistic. And we apply a lot of probably lower weights to what's in there. That said, I guess I would reemphasize that we're playing for the long term here. And our products are still in beta and final pricing hasn't even been finalized for some of this stuff. Our challenge is going to be converting what's in the pipeline into actual contracts. And although our products are going to launch over the course of the year, I think the impact to our revenue is really going to see -- be seen in the latter half of the year. As I'm sure you've seen time and time again, and we've all experienced, the pipeline has to translate into revenue. We don't give a whole lot of weight to early stage conversations. It never happens as quickly as you'd like. And above all, what we are really focusing on is that you got to have a great product. We only have one chance for an amazing client experience, so our focus is on getting the products right. The other thing I would say is that, with regards to the pipeline, we don't have any partner or apps revenue in there. This is kind of the historical kind of direct marketer revenue that Acxiom -- has historically comprised our revenue base.

Okay. And then can you speak a little bit, we all got to see it on the Analyst Day, but the customers saw it the next day. Can you speak to the reception you've had to the Operating System idea and functionality and if -- and how many customers you have in there that are actually trying out the system or paying you revenue for the system? Just where we are in the progress of those products actually getting out there in the wild?

Yes, oh, wow. Great question. I'm glad you asked. I will tell you the stuff that you saw in New York, Carter, is already in some respects outdated. So since we talked in New York, we've actually built at least 3 more new apps that we're getting ready to release into beta. One is essentially an automated offer optimization, such that clients who have multiple client segments, customer segments can better fine-tune specific marketing offers, the best one for each segment. Second is what -- we're working on the nomenclature of namings of all this stuff, is what we're calling Portrait Analysis. And what it allows the client to do is take all of the data that they've historically collected, plug it into our system and then have immediate turnkey insights into who their customers are, what kind of offers are going to appeal. It just allows them to get smart in a hurry. And then the third thing that we're getting ready to release is an enhanced cross-channel planner with even more segment granularity than what you saw, so you can really go down to specific audience propensity segments and plan some of the media campaign in that. We've also, since New York, made some big strides on the user interface. A lot of what we need to do is make big data beautiful, and so it's about data visualization. I will tell you that the client feedback for both the stuff that we showed the world in New York and then also the things that we've done since then, have been very, very positive. I think kind of as of today, we now are in process with over 15 betas for the Audience Operating System. We have many more conversations underway. It's probably our top sales prospecting priority. And in addition, it's not just direct clients, but obviously, our other focus is on making the data usable by expanding the amount of partners that a client can use that data with. So I think I mentioned earlier, we've added 6 new partnerships in the last quarter. That brings our tally to over 40. And I would say, the feedback there has also been very good. I would say that we're becoming far better known and respected in both the digital and enterprise software communities. So a lot of good things there. But again, I think it's worth mentioning, it's important not to get out over our skis. That potential now needs to translate into contracts and revenue. And that's the secondary focus to getting the ecosystem and the products released and ensuring that they get a lot of traction with clients and partners.

And I assume, sorry to be long here, but I assume that given your flattish guidance that you're not assuming much, if any, of that revenue comes into the model from new products or even from that traditional pipeline you alluded to earlier, is that fair?

I'd look at it 3 ways. We expect ITO to be down for the year. Overall, we expect Marketing and Data Services to be up, and we expect a slow ramp in revenue for our new products given the fact that they will launch in the back half of the fiscal year.

Our next question comes from Todd Van Fleet from First Analysis.

Just looking at the business, I guess, more simplistically, there's a lot of moving parts and pieces, a lot of different initiatives going on. I'm just trying to take a look at the company kind of from a higher level here look at the fundamental performance of the 3 different segments individually and just try to get a big picture understanding of where your heads might be at with respect to each of the businesses. It sounds like there's more segmentation, I guess, coming down the line with respect to separating IT, the backbone essentially I guess between management -- or Marketing and Data Services and the IT management. But I mean, the fundamental performance of the smaller business, risk management and so forth, obviously underperforming or at least not performing probably up to your desire there. And then IT management, it seems very difficult to kind of call the margin profile for that business over the longer term, and we expect it to shrink now in the new fiscal year. So just want to think about strategically how you're thinking about the 3 segments and at this particular time while the new product initiatives and everything is going to take a while to develop and things aren't quite soup yet, so just trying to bring some simplicity I guess to the investment story.

Now let me take a stab at that and I'm sure, Todd, that Scott may want to comment here. But I'll try to give you my perspective on each of the segments. And let me start with ITO or the infrastructure management business. First of all, I think, hats off to Kevin and his team, they've had a spectacular year where actually our margin was up over 200 basis points. This quarter, the margin was negatively impacted, principally as a result of a contract renegotiation, which impacted in-quarter revenues year-over-year, and it also impacted our margins. Largely, but for that change and a couple of other project revenue related things, the margin characteristics would not have been down year-over-year for that business. Further, I would tell you, as we look at IT, as we look at the segment for the coming fiscal year FY '14, I would expect the margins to actually improve. So not to wane, but to go up year-over-year. Even though revenues will be down, we would expect the income contribution on an absolute basis within noise to be relatively flat. So the one thing Kevin and his team have done is really stabilize the income side of this business. And now we're working, as Scott mentioned, whether it's with the PrivateCloud or other things, to just really take advantage of this base of capability that we've had. So again, I think a good job to that team. Let me talk about other for a minute. Other is really 3 pieces. One is the risk business, which we're winding down and is now pretty much completely wound down. So that will really fall out into some part of the other segment. Included in there then is really 2 things. There is our fulfillment business in the U.K.,…

That's real helpful, Warren. Just to back up a little bit on what you'd said on the margin for IT management or the ITO business. You said that you expect the margin to improve. Is that on a sequential basis as well? I mean, we had a bit of a dip -- or not really, I guess we had a bit of a dip in the last half of the fiscal year last year. This year, it's really in Q4. I mean, are you expecting a rebound here in Q1 for the margin for that business?

Sequentially, absolutely. So relative to where we are for Q4 to Q1, it will absolutely rebound. I would also expect candidly year-over-year it to be worst-case flat and more than likely up a little bit.

And then just one more on the SG&A line, we saw a step up there. Are we seeing kind of a new level in absolute dollar terms there? Or were there some onetime issues in the quarter for SG&A?

A couple of small onetime things. Maybe a couple of million dollars of the increase. The other change in the SG&A line is really just related to our management structure and an increase in overall incentive compensation accruals. So that level, I would sort of roughly ballpark for SG&A this level going forward for your model.

Okay. So on compensation accruals though, was there a true-up in Q4 this year? And now you expect to maybe accrue a little bit differently... I'm sorry...

I would say marginally a true-up, but nothing that was material.

This concludes our Q&A session for today. I'll turn it back to management for closing remarks.

Great. Let me just jump in and thank everybody for taking the time today. It's indeed our pleasure to share this year and this quarter with you, and we absolutely look forward to sharing our results in the quarters ahead. Thank you very much.

Thanks, everyone.

Ladies and gentlemen, thank you for participating in today's program. This concludes the program. You may all disconnect.