Good afternoon ladies and gentlemen, and welcome to the Acxiom Fiscal 2015 Second Quarter Earnings Conference Call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will be given at that time. (Operator Instructions) I will now introduce our host for today's conference, Ms. Lauren Dillard [ph], Director of Investor Relations. You may begin.

Thank you, operator. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2015 second quarter results. With me today are Scott Howe, our CEO; and Warren Jenson, our CFO. 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. For a detailed description of these risks, please read the Risk Factors section of our public filings and 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 to 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 Web site. At this time, I'll turn the call over to Scott Howe.

Thank you Lauren. Good afternoon and thank you for joining us. I would like to begin today by revisiting our core investment thesis and discussing our progress against building a stronger, more profitable Acxiom. Within that framework, I will provide an update on AOS and LiveRamp and discuss their integration in more detail. And finally I wanted to update you on some organizational changes before turning things over to Warren. In the [indiscernible] sense, our strategic priorities align with the investment thesis many of you have developed on Acxiom. It is predicated on the following four tenants. Number one, first, we believe our core marketing and data services business should be a stable and predictable foundation supported by long standing client relationships and high switching costs. Much of this business is governed by long term contracts with opportunities to up sell existing clients with new data or with consulting and analytics products and count on low single digit growth. Not remarkable, but inherently predictable. Number two, we believe there is portfolio value still to be unlocked. By dis-aggregating the various elements of our portfolio, casting strong spotlights on each and divesting elements of the portfolio that lack strong synergy, when and if fair valuations can be achieved, we can improve our focus and execution everywhere. Number three, we believe that within the pure play of marketing and data services there is an opportunity to tease out much higher margins over time by standardizing around common architectures, products and processes. And number four, the final leg of the investment proposition is the recognition that within the industry there is a real underserved need against which Acxiom is uniquely positioned to serve. In a world where marketers are getting smarter about consuming data and making decisions, there is no way to connect…

Thanks Scott and good afternoon everyone. Before jumping into the quarter, I would like to again update on a few of our initiatives. A little context. Remember these initiatives are about three things. First better serving our customers with standardize state of the art products and simplified and faster delivery; second, tangible productivity, meaning long term margin improvement; and third better jobs, a move away from manual processes toward contemporary common solutions. With that in mind, two points on business separation. We are basically complete with the separation of our business units, giving us complete optionality. Looking ahead into FY16, once our workday implementation is complete, you will see us report and measure each of our segments in a more traditional way, that will more clearly highlight measures, like gross margin, R&D, sales and marketing and G&A. We think this is a big win with for better accountability and transparency. Next running a better business. Today we have three initiatives in place. First, revenue generation and sales excellence. Scott has given a great overview as to our activities and focus. [Indiscernible] and Kerry Hatch are leading this initiative. Our measures of success are pretty simple; pipeline, bookings and revenue growth. Second next generation infrastructure. Get to common, flexible and scalable. We are now live on Workday's HR module and are planning go wide with Workday Financials and trademark performance management at the end of the year. Under this implementation is a new data structure which tracks revenue and costs by product in addition to client and work order. We are also dramatically simplifying our workflow. As I mentioned in the past, we will retire more than 70 custom applications once we are live. In short, we are moving from custom to SAAS, from one off to one way and a…

Thank you. (Operator Instructions) Our first question comes from Dan Salmon of BMO Capital Markets. Your line is open.

Two quick questions. First Scott, you mentioned the beginning of the phasing out of some of the free apps that you had originally launched to sort of showcase the power of the platform and I was just hoping if you could expand on that a little bit to sort of address what that may start to open up for some of the other partners that you'd like to have building apps on top of that platform. And what I'm getting at is, is there an opportunity in retiring in some of those free apps, that there is a revenue opportunity here either, to just simply build a deeper partnership with some of the builders of those tools or also begin to generate some revenue for Acxiom through sales of apps, which is something I know you talked about originally when launching it but we haven't heard too much about lately. And then just secondly, if there's any sort of additional insight you can give us into how the core marketing and data services business is trending, sort of excluding AOS and LiveRamp? You've given us a little bit of insight into the pipeline there in the past. I may have missed something in the initial comments. But any extra color we could get around that would be great?

Sure. I'll start and Warren will probably jump in as well. So first off, on the phase out of some of these freebie apps, if I go back in time a year ago to when we launched AOS, if I could do one thing differently, we would have stood on stage and instead of promoting these freebie apps to highlight the value of what we built, we would have had partners on stage with us to highlight the value of what we built. It's a little bit like inventing electricity. No one knows what electricity is unless you say, hey I invented a light bulb, and then all of sudden they get it. The problem is by giving away these free apps out of the gate, we probably alienated a lot of potential partners. So for instance, our AOS modules have something that a DSP could look and say oh, Acxiom's trying to be a DSP. An ad network could look at it and potentially think that we were trying to be an ad network. A DMP could look at it and say we're trying to be the biggest, most robust, most feature specific DMP ever created. And in reality what we've always tried to do is create the connectivity grid, the pipes that catalyze the applications that others have built. So Dan, to your specific question, the answer is, absolutely. We believe that this is an important step towards building even more tightly integrated partnerships and expanding the number of partnerships that we have. And to the extent that there are applications that already exist in the market that match against client needs, then we have two options. One is to work with an existing application provider and together design something. The other is an isolated cases for one-offs.…

And then maybe just a follow up. You've talked about getting the sales organization sort of repositioned and getting the right people into the right seats to focus on different products. Do you think that those steps are being taking to get that core business up and running? I know we've talked a lot about the tiger team for AOS and LiveRamp being integrated, but are there more people that you need on the traditional side, or is it just simply to getting them back to being focused on cross selling and up selling their traditional client base?

I think it’s a matter of two things. First, you got to have the right people and we’re encouraged by some of the hires we’ve made there. And then those people have to perform. A great quarter for them. Hats off to what they were able to accomplish with some real focused effort. But again, one quarter does not a trend make. We need to string together a few of those.

Hey Dan. One other thing that I’d want add to that point is real hats off to the team of LiveRamp and our dedicated AOS team, as we were particularly pleased with, when you think of 15 new AOS deals, a record quarter coupled with then, ready the first quarter of inclusion with LiveRamp, 20 new deals. This was also the best quarter LiveRamp has ever hard. So again quarter doesn’t a trend make, but the integration on the sales front, and our coordination across our customer base has been done extremely well.

Thank you. Our next question comes from Todd Van Fleet of First Analysis. Your line is open.

Just quickly a couple of model related questions. Warren, I think you called out separation of transformation cost in SG&A. Were the restructuring charges in the LiveRamp acquisition cost included in that line item as well?

When you go through each of the line items, and let me just give you, because they go in different buckets depending from the GAAP treatment. If you start with cost of revenue, there is $4 million of stock based comp, there is $3.8 million of intangible asset amortization. In SG&A there is $3.9 million of stock based comp, $9.3 million of business separation and in gains, losses and other, call it $1 million. And that’s basically the restructuring. And most of that had to do with Europe.

Kind of bigger picture then. So Scott, Publicis has been pretty active in the market in terms of making acquisitions and I'm just thinking about what really could catalyze the growth for AOS in terms of either just the media spend or maybe the SAAS side of the business as well. And I’m just thinking broader adoption within agencies, and specifically your [indiscernible] kind of your marquee agency partner at this point. And in light of these acquisitions that Publicis has made, do you wonder which is a DSP? I'm just wondering, would you see acquisitions being a catalyst for dialogue acceleration for Acxiom or do you think it's a potential to really kind of slow things down perhaps even further then they have been to this point.

Yes I think it's a definite catalyst. One of the biggest challenges that we have with AOS and LiveRamp and feed-in adoption is that it’s a new category. And so the experts are trying to figure out how to use these tools. With the Sapient acquisition, I think it's a brilliant move by Publicis. They've added a legion of the smartest people in the industry. And so the combination of really smart people on top of the kind of tools we can provide, we think is going to be good for us. Likewise I will tell you -- you’ve heard me in past calls talk about where we are with Starcom and I'm very pleased with where we are. We’ve taken a very deliberate, methodical conservative approach, which is built around building a good rapport within the agency, building great relationships. We think we’ve done that and we’re now starting to extend the success that we had with Starcom to other agencies as well. So I think that bodes well for our future with agencies. We started with Starcom nine months ago, a year ago; and now today you've heard us talk about the next cab's [ph] off the rank with respect to agencies we'll be working with.

Okay. So as I'm thinking about the revenue guidance for the full year, I think it's down 4% from prior year. And I'm looking at the two line items, I'm thinking about the core data marketing services business and then the IT management. And then I'm also thinking about the comments that you had initially when you acquired LiveRamp about the revenue contribution from the AOS platform overall, which I think was $50 million to $60 million, about half of which I think was going to come from LiveRamp and half from AOS. You guys are -- on the run rate for Q2 now, you're including the $5 million from Q1 in revenue. You're kind of already at the lower end of that range, if nothing else changes for the rest of the fiscal year. You're winning new relationships, lots of new logos. In the marketplace we -- things we always seem to hear about is the value of offline data in terms of being used to target audiences online. And so I am wondering about how you're thinking about the back half of this year from a revenue standpoint, in light of the new relationships that have been formed. I know you're encouraging everyone to be conservative, but it would seem as though the trajectory here could be a pretty positive. So I guess I'm qualitatively trying to tease out your view on the balance of the year, given everything that you've said, but at the same time the momentum that's been building for AOS seems to be more positive than what's your initial AOS revenue guidance would have suggested? Thanks. [Technical Difficulty]

Ladies and gentlemen, please stand by.

Hello?

Ladies and gentlemen, please stand by. And we have our speakers reconnected.

Hey, Todd sorry about that. We lost everyone just as you were going through a description of our performance on AOS for the year and the revenue numbers.

Yes, sorry, I think I broke it. Really I'm just trying to tease out, so the $50 million to $60 million was kind of your original AOS guidance for this year. Even if you continue on the run rate that you are or that you were in Q2, you're kind of at the lower end of the range, given Q1 performance and you're winning a lot of new relationships. The trends in the marketplace seem to be very favorable. But at the same time, you're kind of cautioning us to be more conservative in terms of how we think about the performance for this year. So it seems like the lower threshold has already been hit. It seems to be relatively good traction. The market tailwind is at your back. So I'm just trying to kind of tease out your -- little bit more qualitative commentary on why we're supposed to be cautious I guess on that performance for parts of the year.

My summary statement to that Todd was it's just one quarter does not a trend make we're going to watch out things go throughout the remainder of the year. And maybe a couple of measures, because you are right. If you simply take our run rate from Q2 and extend that flat, you end up in the low 50s. Another measure for you to consider is right now our ARR is about $44 million, and if you take a trailing 12 month royalty number, again this is trailing 12 month GMS royalty number, not forward, but trailing 12, that's about 11. So that'd put you at about 55. We think it's too early to change our guidance and we think where we are is appropriate.

Thank you, our next question comes from Bill Warmington of Wells Fargo. Thank you.

I was hoping that you could help me understand a little bit better how the AOS -- how we should think about the AOS pipeline converting to revenue? I know in the sense of creating boundaries around our expectation?

Bill I would say, I don't know that there is anything I could add beyond that what Scott has said. What we're doing right now is continuing to build the used cases, continuing to go through this sort of test phase where we really want everybody to move what we're calling into production, meaning moving greater and greater share, greater and greater media dollars through the platform. What we would hope would happen as our execution capabilities continue to get better and as people continue to have bigger and better experiences is you hope that close [ph] rate accelerate. We've obviously seen an acceleration in adoption this quarter, both with AOS and with LiveRamp; and as Scott mentioned, next quarter that will be one product. So we have a good positive step for this quarter in accelerating adoption. We need to get a few more quarters under our belt before we're able to declare victory.

You talked about some of the strength that you've been seeing in the M&DS pipeline, in the bookings growth there. Last quarter you gave a stat that the pipeline was up 7% quarter-to-quarter. Do you have another metric you could provide that would give us an apples-to-apples sense quarter-to-quarter?

Yes, Bill it would be actually slightly down, but that's not surprising because as pipeline converts into booked revenue, your booked revenue goes into revenue and your pipeline then needs to be rebuilt. So not cause for concern, other than I would say overall, I would like our pipeline -- I think we can continue to grow it off the base it's at. We have a target that we want to hit of just kind of steady state pipeline and we're not there yet.

No. And then also, last quarter you talked about the growth in the actual Starcom customers going from 30 to 81 in the first quarter. Just curious if you had a similar stat for Q2?

Yes, I want to say, the number of clients that have been activated isn't going to go up much because we've essentially activated a large percentage of the client base. Our focus now is on ensuring that clients that have been activated are actually running campaigns and having successes. And I believe last quarter, I talked about a half of dozen live campaigns with Starcom. I want to say we're twice that, give or take one client maybe. I really need a direction. So we are seeing more momentum. I would expect that as we hit the back half of the year here and people have successes, that there could be continued gains.

Got it, okay. The other thing I was hoping you could comment on is to talk about Facebook's Atlas product and how that relates to AOS? I know -- it's a product well from your former life. I was hoping to have some comments on that?

Yes, well first off, huge kudos to Facebook for introducing a viable competitor in the third party ad serving market. And the Atlas that they've re-launched isn't the Atlas that I had helped build years ago. It has much better functionality and has the ability to ingest a much broader swath of data and better attribution capabilities as well. We have a great partnership with Facebook on the media side. I would hope that there are ways to integrate with them further, not only just in Atlas but in other elements of their technology as well. But nothing to announce there yet. Rather those are conversations that have yet to turn into product opportunities.

Thank you. Our next question comes from Brett Huff of Stephens, Inc. Your line is open.

I just want to make sure that I'm getting a couple pieces of math right. On the marketing and data services, I understand you gave us a total MDS revenue number and we can subtract $15 million from that if I'm hearing you right to get sort of the legacy MDS revenue number. What was the equivalent last year for the fiscal second quarter, so we can understand exactly what those numbers were year over year ex-AOS and LiveRamp?

So last year would've been just under $2 million.

Okay. And then, on the apples-to-apples pipeline as well, so the $90 million pipeline you gave us is both AOS and LiveRamp?

Yes.

Yes.

Okay and the apples-to-apples, AOS-to-AOS, it would've been down slightly sequentially?

Say that again apples-to-apples. AOS?

So AOS only -- so the pipeline last quarter was just AOS?

No, no it was not down sequentially. In fact it was up. What we tried to do this quarter Brett was to go through and [indiscernible] stuff and we think we've got and tried to be pretty conservative in stating this pipeline but the AOS pipeline year-over-year or sequentially was not down, nor was the LiveRamp pipeline down either.

And then, could you also just go through the math again on the gross media spend that you were talking about, the ARR $44 million et cetera. I just -- I wasn’t writing fast enough.

So think about ARR as our subscription related revenue, which is typical SAAS. So that’s 44 million where we sit today. And then what we tried to do was triangulate around maybe the question that was asked earlier, as what is your conclusion from the $15 million in this quarter. And one of the ways you could do it is straight line to '15 or you guys may choose to some sort of growth factor on that. That’s up to you. The other way that probably increasingly will become a way we will be looking at the business and trying to do it appropriately conservatively is to say all right, we know there's two sources of revenue here. There is subscription based revenue and then there is also our share of GMS. And that’s what I called the trailing 12 month royalty. And it wouldn’t be appropriate for us to forecast that number in a measure like this. So we said let’s take something that we think would likely be a conservative estimate of at least what you could expect going forward. So if you look back on a trailing 12, that number was 11. So one could triangulate and say, okay, what does it look like? Well, we’re on an adjusted ARR basis running at about $55 million.

And then Scott, you were taking about expansion of the tiger team or specialist team from the AOS, a tactic on AOS sales to its sounds like more of the legacy business sales. Can you -- is that -- it sounds like its working. Give us some more color or thoughts on that? Do we need to expand it? Do we have the right team in place et cetera for that.

Yes so three months in, all signals are positive and just to remind everybody what we did, I believe on the last earning calls I first announced we were doing this. And that is taking the use case -- taking the success we had with AOS specialist team, folks who just sold AOS, and then extending that to data. Because data is also something very specialized. Often times clients with their existing CRM database, the first question they’ll ask is what model should I be creating along with this? Or alternatively, as we expand AOS penetration, a question that clients will ask is what clients segment should I create out of the data sets that I have here? And so having some data specialists who can come in and parachute into those conversations, we believe is something that will bear fruit over time. And so we started off the tiger team, six people on that, all of them recruited internally, many whom have a decade or more deep data expertise. And in their first three months, they were able to book, across the six of them $1.6 million in data revenue. So we feel good about the run rate that they're on there. We think that their expertise, coupled with the fact that our AOS connectivity gives us more distribution channels through which to sell data is going to be an accelerant for the data business over time.

And then last question is, in terms of the LiveRamp clients, there were a couple or two or three large clients that LiveRamp is working with, who sounds like you all were talking to, to see if that relationship was still going to work. Can you give us an update on those? Where we are? If anybody is left or renewals of contracts.

Yes, there's probably like four or five that if you look at a list you’d be more concerned about, because you'd although they're customers of AOS/LiveRamp, they might consider themselves to be historical competitors to Acxiom. We’ve met with them all and given them reinsurances about how we intend to serve them. I think we followed through on that. I know in at least one case we renewed. But I will tell you, this isn’t a question that's going to be answered in a quarter. Rather it’s a question that probably gets answered a year from now, because each one of them -- and in their shoes I'd do the same thing -- are watching us and making sure that we deliver against our promises before they make a long term decision. So, so far so good, but I think the true test is still to come.