Lauren Russi - Director, IR Scott Howe - President and CEO Warren Jenson - EVP and CFO.

Dan Salmon - BMO Capital Markets Todd Van Fleet - First Analysis Bill Warmington - Wells Fargo Brett Huff - Stephens, Inc. .

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 that data and activate it across all of the applications that drive interactions with consumers. And out of that need AOS and its connectivity grid were born.

While Warren will talk about our efficiency and portfolio initiatives later in the call, I'll focus some of my remarks on our core marketing and data services business and then turn to our business and integration progress with AOS and LiveRamp. First, our core marketing and data services business.

Earlier this year we laid out disappointing but what we felt was realistic top line guidance for our marketing and data services segment, which caused many of you to call into question the stability of this business.

We continue to believe we understand the underlying drivers of this top line softness, and are taking necessary steps to get things back on track. In recent months I’ve outlined a series of action aimed improving our top line growth.

This actions included, one strengthening our sales and sales operations leadership; two placing far stronger emphasis on account planning with the goal of rebuilding our pipeline; and three, extending our use of the specialist generalist model to build upon the success we experienced with the AOS tiger team.

While we are still far from where I would like us to be with regards to topline growth, let me update you on some of our progress. The second quarter was a very strong bookings quarter for us. In fact it was our strongest upsell quarter in 11 quarters.

We signed a number of key deals, including new contracts with Duke Energy and TD Bank Group, as well as large renewals with a top three key credit card issuer, and a leading insurance provider. We continue to experience success with the use of our specialist sales teams, and most recently expanded this model for data.

In fact the efforts of six data focus individuals have already generated $1.6 million in expected revenue for this fiscal year with considerably more in the pipeline. And finally as we continue our account planning efforts, client by client we’re also discovering new opportunities.

We’re increasingly finding a strong linkage between traditional marketing and data services business and our efforts to catalyze data connectivity for the industry through our AOS innovation. For example we recently announced a renewal of our marketing database contract with Hurst.

In designing an ideal solution for our client, we applied the cloud based connectivity of AOS to create a more flexible design for Hurst.

Likewise, as our clients take advantage of AOS to ingest a wider variety of data, adding substantial amounts of unstructured digital data to complement their historical data, we are finding opportunities to upsell new analytics and consulting products. A single quarter does not a trend make.

So now we must duplicate our success in transforming pipeline into bookings for the remainder of the year, while at the same time replenishing our pipeline. I believe we are doing the right things to stabilize the core business and get the top line moving again. I will reiterate what I said on our last call.

Accelerating revenue growth remains our utmost immediate and long term priority. Next AOS and LiveRamp. I would like to highlight three key takeaways for you with respect to the AOS and LiveRamp integration. One, the integration is going well. Two, early results have been impressive.

And three, while we experienced some initial growing pains, we are confident we will emerge with an even stronger integrated product. First the integration is off to a good start.

Throughout the past quarter, a cross functional team comprised of both AOS and LiveRamp associates worked closely to determine how best to combine the best elements of each offering into an even more cohesive and effective integrated product.

Within three months they have identified a number of synergies and laid out a methodical product integration plan that will stretch through the end of next fiscal year.

By merging the respective matching capabilities of LiveRamp and AOS, an effort which is already complete, we have reduced annual costs by $10 million and increased our ability to recognized more than 120 million individuals across more than 350 million devices.

Ultimately this provides marketers with greater reach and frequency in their digital marketing efforts. By taking advantage of one another integrations, we’ve also started to activate a much larger partner network with our data.

For example, over the past month, we’ve initiated data distribution to more than 20 new partners, including most of the major DSPs. This provides advertisers with more granular targeting capabilities and should ultimately drive more Acxiom data usage. Our sales efforts have also accelerated.

Since becoming part of Acxiom, LiveRamp sales effects [ph] have been introduced into introducing Acxiom client engagements. Through these efforts LiveRamp has already contracted with eight new clients. My second takeaway. Early results have been impressive.

Please turn to Slide 3 and I will provide an update on the adoption metrics we introduced on our last call. On this call only, we will share metrics for AOS and LiveRamp separately. Going forward they will presented as a single product line. A few highlights. First, we continue to increase our installed base.

We signed 15 new AOS platform deals during the quarter, more than double the number we signed in Q1. New clients include AT&T, Toyota, a large retailer and two major credit card issuers. We ended the quarter with approximately 60 customers using some element of the AOS platform, a sequential increase of 25%.

LiveRamp added over 20 new customers during the quarter. At the end of Q2 the LiveRamp client roster totaled approximately a 115. We were also hard at work building at our partner ecosystem this part quarter. In fact we added 15 new integration partners.

In total, marketers can now connect their data to over a 120 marketing applications, representing the most expansive network of publishers and marketing technologies in the industry. As our installed base grows, our revenue continues to ramp. AOS revenue was $7.5 million in Q2, up 36% from approximately $5.5 million in Q1.

LiveRamp added another $7.5 million in revenue in the quarter. Going forward, we will begin reporting a single consolidated revenue number for these businesses. We are beginning to generate traction outside the United States. Last quarter, we announced a partnership with Carrefour, Europe's largest retailer.

More recently, we signed three new agency deals; Starcom Mediavest Group in Europe; Hakuhodo, Japan's second largest advertising agency; and DMG solutions, a leader in the multi-cultural marketing space. We also announced a strategic partnership with Weibo Corporation, China's leading social media platform.

Finally, we believe we have only scratched the surface. AOS powered $37 million in gross media spend in Q2, a sequential increase of 32%. Gross media spend should continue to ramp in the back half of the year.

Our combined pipeline also continues to grow when we exited the second quarter, with over $90 million in qualified pipeline, representing an increase of 20% over the prior quarter. Further, we are experiencing greater deal velocity as our time to close improves.

As you can see, we experienced a lot of momentum with AOS in Q2 and I'm also very pleased with the early integration progress we have made.

That said, let me also reinforce that we are just getting started and there is still much work for us to do to ensure that our AOS and LiveRamp product offerings are integrated into an even more compelling single offering. This brings me to the third theme I'd like to highlight. We are confident we will emerge with an even stronger integrated product.

First let me acknowledge that both AOS and LiveRamp are experiencing the problems typical of any product introduction. Above all, as we add more clients and partners to the platform, we must improve our scalability and ensure our offerings perform flawlessly 100% of the time.

In addition, our clients are vocal about what additional features and partner integrations they would like us to prioritize in the future. For us, ensuring that we deliver against these key items is our top engineering priority.

Beyond that we expect to offer an even more cohesive an effective product offering that combines the best features of AOS with LiveRamp. Migration will occur gradually over the coming 18 months and we intend to do this in such a way that every client gets upgraded functionality at the time of their migration.

Ultimately, we believe that this will result in a variety of benefits, including faster SLAs, particularly around data ingestion and distribution, greater process automation and increased self-serve functionality, significantly improved digital reach and vastly more use cases due to the combined suite of partner integrations.

There will also be some features that will be discontinued over time, including a slew of the pre-applications that were created to illustrate the power of AOS. With over 120 partner applications now enabled, it is no longer necessary to build light weight giveaways, when our partners have full featured applications.

Finally let me end by once again urging you to keep your expectations around AOS and LiveRamp appropriately bounded. These businesses are growing rapidly and we believe we have only scratched the surface.

At the same time, our growth is predicated off a small base and we must continue to improve our collective product offering and ensure we can scale in line with greater demand. We are still very early in the client adoption of the offering. Let me now step back and summarize where I think we are.

We feel like we're taking the necessary steps to regain our footing in the core business, though we now need to maintain our bookings momentum in the back half of the year in order to regain our historical growth rates for future years. Our confidence in the future of our AOS LiveRamp business continues to grow.

We believe this is a new industry category. Our capabilities deliver compelling value to clients and partners and we expect sustained growth of what is today a small base. We're attempting to do a lot of things, in parallel, all in the public company spotlight. So there will naturally be both optimism and obstacles along the way.

But we continue to believe in the strength of our investment thesis and quality of the ultimate opportunity. Over the next several quarters, execution and focus will be the driving forces that ensure we are well positioned to capture this opportunity.

I would like to conclude my formal remarks by sharing some recent organizational news, before turning things over to Warren. Over the past few years, responding to the evolving needs of both our clients and the industry around us, we have worked hard to transform Acxiom's reputation for innovation.

Acxiom has developed and brought to market more significant products with innovations in the past three months than at any other similar period in its 45 plus year history. We introduced the Acxiom Audience Operating System, which together with LiveRamp, continues to gain momentum within the industry.

We introduced aboutthedata.com which established us as the leader in providing people with voice and choice regarding the marketing data we have aggregated about them. Our Audience Propensities models won an award for the best new products of 2012.

And finally, we place strategic bets to buy LiveRamp and its network of partner connectivity that would advance our vision faster than we could build on our own. Put into context, this has been an amazing period in our evolution and I am extremely proud of the incredible strides we have made.

With this rapid innovation comes a bifurcation of future needs. We must continue to innovate, as failure to do so equates to a long steady decline into irrelevance. But we must also ensure that the products we have released continue to be improved.

Our customers generate fantastic successes and we manage these products into the profitable and foundational businesses we believe they will be. In short, we must balance both innovation and superior execution. With that as a backdrop, I am excited to share that Dr.

Phil Mui will be taking on the newly created role of Chief Innovation and Technology Officer. Since joining Acxiom as Chief Products and Engineering Officer, Phil has never been afforded the opportunity to singularly focus on ideation.

It his new position, Phil will be able to devote his energy to exactly what he does best, thinking about and incubating the next big thing. In parallel, I've promoted two existing executives into positions of heightened responsibility for the product and engineering organizations.

Venky Natarajan has taken on the role of SVP of Engineering, which includes the responsibility over the Program Management function. Venky joined Acxiom earlier this year with a deep background in online advertising. Prior to Acxiom, he was running the product management organization at eBay Advertising.

Travis May has been promoted to Senior Vice President of Product Management for Acxiom. Travis came to us through the LiveRamp acquisition, where he led the efforts to build their product and partner networks.

I believe this will further accelerate our efforts to create even better product offerings across Acxiom and LiveRamp and it also allows us to inject a healthy dose of entrepreneurial spirit and digital innovation into our senior leadership team.

It's also worth noting, together Venky and Travis had been leading the Acxiom and LiveRamp integration efforts. So they have proven their ability to work across the entire organization and solve some of our most complicated challenges.

Venky and Travis will report to me, as will Phil who will work across the entire organization in his rapid innovation and incubation role. Let me conclude by thanking all of you for your continued patience and support in our journey. I like the progress we are making, but also recognize we still have miles to travel.

While we regain our momentum against the core marketing and data services business, we also must continue to build meaningful future revenue streams through our combined AOS and LiveRamp businesses. With that I'll now turn the call over to Warren..

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 lot of work just goes away. Finally we have already build a capability which enables clear P&L ownership to each of our businesses. Dennis Self, Jena Compton and I are on this initiative.

Our measures of success lower cost, better faster insight and a higher quality of work life for our associates. Next, we continue to make progress on re-architecting our datacenter and network infrastructure.

This is all about upgrading our infrastructure to support real time scalable and cost efficient business operations, while simultaneously improving upon our security capabilities. This is a multiyear effort, which should begin to realize benefits in the back half of next year. Third; common products, common delivery.

Our efforts are being led by Mike Lloyd from delivery and N Kennedy and Todd Parsons from our product management organization. Our focus is two-fold. In our data business we are working on re-architecting our third party data supply chain. Today we ingest, aggregate, update and manage third party data using 26 disparity databases.

And each of those databases has its own set of business processes and business rules. Over the course of the next six quarters, we will migrate to one database, with one set of standard business rules and processes for managing our third party data assets. This effort we estimate we will improve our efficiency by roughly $3 million in FY16 alone.

Next we will be standardizing automating and accelerating how we fulfill and deliver our data, products and services. Today when a customer wants to purchase a set of data products, our ability to accommodate that request is done manually and on a batch basis, or in other words, not in real time.

By midyear fiscal ’16 we will have automated these steps. This not only makes us more efficient but it also enables all kinds of self-service options, with real time response and more affordable price for our end users. And finally through LiveRamp, we are making our third party data available to the digital marketing ecosystem.

You’ve all seen our success with Facebook. Now with LiveRamp we are taking our data to all of our partners. We started with 15 data partners and now with LiveRamp we are already distributing to more than 30 such partners including AOL, Rocket Fuel, Turn [ph] and Oracle. In summary we are taking our data everywhere.

Next in our marketing database business, we're working on the following. Todd, Mike and their teams have been developing a standard approach for how we can figure, implement, operate our marketing database. Today our engagements are largely custom.

Stated differently our historical approach was build-to-suit, one by one by one, and we did it differently every time. So what are we doing? We are methodically analyzing each customized offering and in doing so are identifying the most common use cases. Once this analysis is complete, we will began the process of rolling out standardized products.

Next we are opening up all kinds of revenue options to address an involving customer's need. On the infrastructure front, we’re now able to host customer data in our private cloud or with a third party cloud provider. This approach enables us to take customers to market quickly and to scale their databases with our capital investment.

As Scott mentioned, we recently worked with Hurst to migrate there data base into the cloud. This give them the flexibility to quickly scale up and down, depending upon the needs of their business. On the recognition front, our long-term focus is on real time availability.

Think of [indiscernible] tech, available in real time across our entire partner network, make entity resolution anywhere. In conclusion we have a lot going on and we are counting on our teams to deliver tangible results that benefit each of our important constituents; customers, shareholders and our employees.

Now let me turn to our second quarter results. For the quarter, total revenue was down approximately 3% year-over-year. Excluding the impact of lost ITO customers and our European restructuring, revenue was up roughly 5%. Marketing and data service revenue was up 2% compared to the same period last year.

AOS and LiveRamp grew approximately 20% sequentially to $15 million. Half was LiveRamp, half was AOS. GMS in the quarter was $37 million, up 32% from Q1. Excluding unusual items, non-cash compensation and intangible amortization, marketing and data service operating margin improved to 10% from 9% a year ago.

On a non-GAAP basis, diluted earnings per share were $0.18, compared to $0.23 in the prior year. Now I'll discuss our quarterly results in more detail. Starting with Slide 4, our summary financial results. Total revenue was $260 million, down 3% compared to the same period a year ago. Marketing and data service revenue was up 2% for the quarter.

IT infrastructure management revenue was down as expected, approximately 17%. OpEx for the quarter was $257 million, compared to $249 million in the prior period.

Excluding unusual items of approximately $22 million, OpEx was slightly down year-over-year, primarily due to savings associated with our cost reduction program, offset largely by an increase in engineering related expense and the addition of LiveRamp.

Unusual items totaled $22 million for the quarter, of which $4 million was related to acquired intangible asset amortization associated with the LiveRamp acquisition. We recorded $9 million of third party expenses related to our business separation and transformation activity and incurred an additional $1 million in severance cost.

Finally, non-cash compensation expense for the quarter was $8 million. Please note that business separation and transformation costs are included in SG&A. Excluding unusual items, SG&A was down approximately 2%. GAAP diluted loss per share from continuing operations was $0.02 in the quarter.

Excluding unusual items, diluted earnings per share were $0.18 compared to $0.23 in the second of last year. Slide 5, U.S. marketing and data service revenue increased $4.7 million or roughly 3%. International marketing and data service revenue was down 5% year-over-year.

Our year-over-year comps in international were negatively impacted by roughly $4 million as a result of our existing the paper survey business. Excluding this lost revenue, international was up over 11%. On a year-to-date basis, international is also approximately 9%. Slide 6.

For the quarter, our operating margin, excluding unusual items was 9.7% compared to 11.9% in the prior year. U.S. marketing and data service margins remain flat year-over-year. Savings associated with our cost reduction efforts were offset by increased engineering investment and the addition of LiveRamp.

International M&DS improved from a $1 million loss to breakeven, mostly due to performance improvements in Europe and China. ITO margins decreased from 19.2% to 8.4%, driven by lost revenue from terminated contracts. Now on to Slide 7 and 8.

For the quarter, free cash flow to equity was negative $5 million, compared to $18 million for the prior year period. The decrease was mostly due to cash restructuring and business transformation expenses, coupled with increased capital spending.

On a trailing 12 month basis, free cash flow to equity was $33 million compared to $69 million for the prior period. In the quarter, we capitalized roughly $6 million as internally developed software. CapEx was $19 million, up $10 million year-over-year.

The increase was primarily due to investment in our next generation network and infrastructure and initial CapEx associated with our Exelon contract. On July 1st, we closed the LiveRamp acquisition for $266 million net of cash acquired. On Slide 9, you'll see how this impacted our balance sheet. Now onto guidance.

Our guidance excludes items including one-time separation and transformation expenses, acquisition related charges, restructuring and severance costs, acquired intangible asset amortization and stock-based compensation. Please turn to Pages 10 and 11. These charts are the same we used last quarter. One time expenditures and restructuring.

For the remainder of FY'15 we expect one-time expenditures and restructuring charges to be approximately $26 million, of which $10 million relates to anticipated restructuring. Please keep in mind that over the next two quarters, we will complete our HR and finance ERP implementations.

In addition we will go live with a new reporting model and financial planning system. CapEx. We continue to expect CapEx for the year to be approximately $100 million. LiveRamp in tandem with asset amortization, we expect $3.7 million in amortization per quarter on a go forward basis.

Looking at Q3, we expect overall margins to be roughly flat to slightly down year-over-year. An expected slight increase in M&DS margins should offset lower ITO margins. Net, we are tightening our guidance as follows. We now expect revenue growth of between 3.5% to 4.5% as compared to our adjusted revenue base of $981 million.

And on the bottom line, we expect our results to be in line with current consensus estimates for between $0.73 to $0.78. With that, we want to thank you for joining us today. On behalf of all my colleagues we know we have a lot of work to do but remain optimistic and excited about the opportunities that lie ahead.

We look forward to updating you throughout the remainder of fiscal 2015. Operator, we'll now open the call for questions..

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. We may build it ourselves and then charge accordingly. But make no mistake.

We believe that the amount of engineering effort that goes into the kind of partner integrations that we have done and we'd like to do more off is every bit as impressive as the engineering efforts required to build a whole bunch of applications. The difference is we want to catalyze the market, not compete with everyone.

On core marketing and data services, you hit on the issue that I probably think about as much as anything right now, because obviously the growth in our core has been disappointing.

I want to on an apples to apples basis, you tease that apart and it looks like down roughly 4% on a same store basis excluding the discontinued European paper survey business. We don’t like that outcome and that’s why I’m encouraged by having a record bookings quarter.

The things that we said we were going to do in terms of -- you got to build -- building revenue is a pretty simple formula. Revenue is a function of the prior year bookings, which is the function your ability to create a pipeline. And so we’ve working hard against each one of those things.

But I will tell you, while I’m pleased with the performance we posted in this last quarter in terms of doing those things, I am not at all pleased with the results and we need to have a few more of those booking quarters sequentially.

I think the pressure is on our sales force to live up to that before we can return to the kind a historical growth levels that we’ve observed in our core..

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..

Thank you. And that's all the time we have for questions today. Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day..