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

Brett Huff - Stephens Dan Salmon - BMO Capital Markets Robert Mattson - Dougherty & Company LLC Adam Klauber - William Blair & Co. William DiJohnson - Wells Fargo Securities.

Good afternoon, ladies and gentlemen and welcome to the Acxiom Fiscal 2017 First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the call over to your host, Mrs. Lauren Dillard, Senior Director of Investor Relations..

Thank you, Ester. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2016 first 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 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 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 website.

At this time, I will turn the call over to Scott Howe..

Thank you, Lauren. Good afternoon and thank you for joining us. Before jumping into the quarter, I would like to spend a few minutes discussing the pending sale of our impact email business to Zeta Interactive.

For the past several years, Acxiom has been sharpening its focus around what we do best, providing the data foundation for the world's best marketers. Through our leadership and recognition, data stewardship and integrations, we're uniquely positioned to supply the critical infrastructure marketers need for omni-channel people-based marketing.

In parallel, we've also identified those businesses in our portfolio which are not central to our strategy. We've divested our Security Screening business, divested our IT Infrastructure Management business, discontinued our European Paper Survey business, and shuttered Subscale Agency businesses in various international markets.

Acxiom impact is an award-winning email service provider that serves some of the world's best and largest marketers.

But only an in-house email service provider falls outside our strategy and every year when we won awards for creative services and placed on the best agencies' lists, we confuse the many great agencies that were actively courting as data connectivity and managed services customers.

In addition, enterprise software companies such as Oracle and Salesforce have become some of our most valued data and connectivity resellers. While they have been enthusiastic supporters of Acxiom, they have questioned why we compete with their email applications. My message to all of the world's great agencies has always been simple.

We don't compete with agencies; rather our goal is to empower them. My message to enterprise software companies is similar. We're not creating our own monolithic marketing stack, rather our intent is to power and connect their stacks to the world. With today's announcement, I am reinforcing our commitment to open partnership.

Acxiom is an open provider of technology and services, ready to provide the data foundation for any marketing stack, any creative agency, and any provider of campaign execution services. We're also giving Acxiom Impact the opportunity to flourish in an environment dedicated to unlocking its full potential.

This deal represents an exciting next step for Acxiom and Zeta Interactive, creating an opportunity where everyone can experience the benefits of tighter strategic alignment. And we believe our associates, our clients, and our shareholders will reap the rewards. For those Acxiom Impact associates listening today, thank you. Thank you.

You've contributed much to our culture, successes, and family over the past decade. And you will be missed. Going forward, Acxiom is well-positioned to be the agnostic data foundation for anyone and everyone. Our LiveRamp division has laid the pipes that allow marketers to activate data in any platform.

Our Audience Solutions division fuels relevant marketing communications by validating and enriching consumer data. And our Marketing Services division operates as digital marketing architects for the C-suite, providing services that combine the offerings and capabilities of our other divisions into turnkey solutions.

While I like the composition of our current portfolio, we will, as we have always done, continue to evaluate our assets within a framework of pursuing what we believe is a winning strategy and also creating long-term shareholder value. Now, let's review the quarter.

Q1 was a solid quarter highlighted by strong financial performance, new client and partner additions, and continued innovation. The year is off to a great start and our recent results demonstrate the momentum we're experiencing across each of our businesses.

At the same time, there's a lot of work to be done over the next several quarters to ensure this momentum carries itself through the remainder of the year. Let me begin by reviewing Connectivity. Connectivity had another strong quarter and our recent results continue to demonstrate the network effect of this business.

Despite the headwinds from the first-party GMS transition, total revenue grew over 50% and the LiveRamp team closed their largest ever bookings quarter. If you turn to slide four, I will update you on our key metrics for Q1. We signed over 50 Connectivity deals in the first quarter and added more than 20 new direct customers.

Our new products continue to gain traction and today, we have over 40 customers signed up for Customer Link. In total, our direct customer count grew to roughly 305 and if we included indirect customers, whose data we onboard through our reseller partnerships, this number would be multiples higher.

We generated approximately $31 million in revenue during the quarter, up 52% compared to prior year and we exited Q1 with a revenue run rate north of $120 million, up from $110 million at the end of Q4 and up 50% year-over-year. We also continue to build out our partner ecosystem and added over 50 new integration partners in the first quarter.

Marketers can now onboard and distribute data to a growing network of more than 350 partners. We expanded several existing partnerships during the quarter as well.

We recently announced a new integration with Facebook's Offline Conversions API, allowing clients to connect Facebook advertising campaigns with offline sales transactions taking place in stores, call centers, and other brick-and-mortar locations. This is a really big deal for marketers.

We also announced the expanded partnership with Google, adding customer match to an extensive set of integrations that include Google Analytics 360 Suite, Google DoubleClick Digital Marketing Solutions, and Google Store Transactions for both AdWords and DoubleClick Search.

The new integration with Google Customer Match enables brands to swiftly activate their first-party data for targeting across YouTube, Search and Gmail. Client used cases are also expanding. Today, the average number of connections per client has grown to eight, up over 20% in Q1 and up significantly from a year ago. This is also a really big deal.

A great example of this, a major pet food retailer recently signed on to do CRM display targeting for four display destinations. They've since expanded to seven destinations and are also sending their data to an attribution platform to measure ROI.

This underscores the increasing value we're unlocking for clients and the stickiness of the network effect. And finally, I'm very pleased with our recent progress in International, where Warren has provided some savvy leadership, while fueling a renewed excitement for the future. In Q1, we launched LiveRamp in the U.K.

and France and the response from clients and partners continues to be very positive. We signed a handful of large advertisers during the quarter and our pipeline for the remainder of the year remains strong. We're also making good progress building our Match network and recently added 20 new Match partners across the U.K. and France.

From a product standpoint, we continue to invest in our core recognition privacy and distribution technologies. Last year we rolled out Smart Reach, a program where participants can boost their match rates contributing authenticated traffic from their own digital properties to a larger shared pool.

While we're still in the early stages of this initiative, Smart Reach is generating impressive results. We currently have 45 clients participated in the program and most are seeing double-digit increase in match rates as a result. Our mobile efforts are also progressing nicely and we now have more than 70 million deterministic mobile matches.

In summary, we accomplished a lot Q1. We also recognized there is much more to be done in order to defend and extend our leadership in data connectivity. Our biggest challenge will be to simply maintain our topline growth rates across an even bigger revenue base.

In the coming quarter, we intend to segment our Connectivity salesforce, so that they began to specialize and accelerate their traction with our key customer segments. Instead of one-size-fits-all, we'll have groups oriented towards agencies, publishers, direct advertisers, and enterprise software providers.

We know we face some headwinds this year from the transition of first-party GMS royalties, but we think we know we're making the moves to set us up for continued strong growth for next year and beyond. Switching gears now to our DaaS, our Audience Solutions business.

Audience Solutions also had a very strong quarter and the team made good progress against the growth initiatives we laid out on our last call.

As we've shared before, we firmly believe this business can be a second growth engine for Acxiom and as Audience Solutions continues its transition from data manufacturer to data as a services provider -- DaaS provider, all leading indicators are trending in the right direction.

Q1 was the third quarter in a row of year-over-year growth and in the U.S., revenue was up 9%. We closed dozens of deals in the quarter, including a large multiyear renewal with the global delivery services provider and a new logo deal with a leading provider of data-driven television solutions.

On a trailing 12-month basis, new bookings are up more than 20% over the comparable period. We continue to expand distribution to digital channels and added 20 new data services partners in Q1, including Verizon and IBM.

Today our data is available to support targeted advertising at approximately 120 online and mobile publishers, television operators, and ad tech platforms. During the quarter, we powered $135 million of total gross media spend, up sequentially and up over 100% compared to prior year.

Once again, this was a record gross media spend quarter for us, driven largely by strength in third-party media spend. On a trailing 12-month basis, GMS was $466 million, up 17% over last quarter.

Of course, GMS is just a proxy for what really matters, data usage, on this, digital data revenue is perhaps a cleaner indicator of Acxiom's growing participation in fueling smarter marketing decisions. In Q1, digital data revenue was more than $10 million, up over 100% compared to prior year.

This revenue stream now represents over 10% of Audience Solutions' revenue, up from around 5% year ago. And finally, during the quarter, we announce significant updates to AbiliTec, the industry's first and leading identity resolution technology.

AbiliTec provides clients with the ability to create a single customer view across their enterprise and activate their marketing messages across channels and platforms to create relevant and personalized customer experiences. This release provided customers with improved accuracy and access to new digital used cases and touch points.

Feedback from the market has been astoundingly positive with client seeing improvements in speed, availability, and accuracy. Internal Acxiom groups are also leveraging the release. Acxiom TV and LiveRamp saw double-digit match rate improvements when they replace their matching capabilities with the AbiliTec.

Our biggest challenge in the Audience Solutions division will be to maintain and accelerate our turnaround. Our opportunity here is to become the leading DaaS provider and sales must increasingly give way to automation in everything we do.

Through APIs and licensing, we must increasingly make our recognition and data key ingredients in others products and data manufacturing must increasingly give way to a much larger data marketplace whereby which we're seen as the expert source for all the world's data. Finally, I'll discuss Marketing Services.

During the quarter, our Marketing Services business grew 2% in total and 4% in the U.S. Our core Marketing Database and Consulting businesses were up 8%, but were offset by declines in Acxiom Impact.

We also signed several key deals during the quarter, including large database renewals with Onemain Financial, a global apparel manufacturer and a marketing analytics environment renewal with a major big box retailer. In addition, we recently signed a strategic recall contract to provide ongoing recall data services to a large domestic OEM.

This is a win for all of our divisions. Under this agreement, we will provide services to recognize vehicle owners support communication outreach via Connectivity and host the clients' recall data in Acxiom's Safe Haven environment. Our biggest challenge in Marketing Services is to sustain growth and at the same time, expand margins.

I feel like we're out in front of this, but have work to do in the back half of the year and in FY 2018. Net-net, we feel very good about where we are as a business and you will see that reflected in our guidance. While we have challenges, we feel like our momentum is accelerating. With that, thank you again for joining us today.

Given the progress we're making, I remain very optimistic about our future and look forward to updating you on our continued progress in coming quarters. I will now turn the call over to Warren..

Great. Thanks Scott and good afternoon everyone. Before running through the quarter and guidance, I'd like to spend a few minutes reviewing the impact transaction and discuss how we plan use the proceeds. Please turn to slide three.

We have entered into a definitive agreement to sell our Impact Email business to Zeta Interactive for total consideration of $22 million, comprised of $18 million in cash at closing and a $4 million promissory note payable 12 months after close.

Separately Acxiom will enter into a multiyear contract to provide Connectivity and Audience Solutions services to Zeta. Use of proceeds, we plan to use the proceeds to help fund the expansion of our share repurchase program and to enhance our financial flexibility.

To that end, we've announced that our share repurchase authorization has been increased by $100 million to $400 million. The program has also been extended through June 2018. Today, we have repurchased 16.4 million shares for $275 million. In the quarter, we repurchased 926,000 shares for $20 million.

Under the expanded program, we now have 125 million remaining available repurchase. A few additional details. While the transaction is subject to normal closing conditions, we expect the deal to close in our second fiscal quarter. There are no financing contingencies and HSR approval is not required.

Due primarily to its size, Acxiom Impact will not meet the accounting requirements or reporting as a discontinued operation. However, in the appendix of our slide deck, we've included a historical view of both Marketing Services and the total company excluding Impact.

And finally, while the exact closing date will determine the final adjustment, we have updated our full year guidance assuming the September 30th close date. Switching gears now to Q1, a few highlights from the quarter. First, this was another strong quarter for the company and the trend lines are headed in the right direction.

Total revenue has increased 5% or more in five of the last eight quarters and also in each of the last three. For the third quarter in a row, each division has posted topline growth. Our adjusted gross margin has improved in each of the last eight quarters and was up 200 basis points in Q1.

And in seven of the last eight quarters, our adjusted EBITDA was up on average 12% year-over-year. Both Connectivity and Audience Solutions are demonstrating the power of their respective models. In Audience Solutions alone, digital data revenue was over $10 million during the quarter.

For the fiscal year, we expect this high margin revenue stream to exceed $50 million. Our data products are now available at 120 digital destinations. And LiveRamp's partner Ecosystem now exceeds 350 destinations.

Equally, if not more importantly, we're building stickiness and a powerful moat [ph] as we now have more than 45 companies signed up for Smart Reach. LiveRamp, again, had a strong bookings quarter. Connectivity revenue was up over 50% and product revenue was up 62%.

Inside of our Marketing Services segment, Marketing Database and Consulting had another solid quarter. Global revenue was up 8%. Excluding one-time integration revenues of approximately $3 million, Marketing Database and Consulting was up 4%.

We believe our Marketing Services leadership is doing the right things to drive sustainable growth and profitability in this business. In summary, while we are far from declaring victory, this quarter marks another strong data point in the formation of a meaningful trend.

Now, I'll discuss first quarter results in more detail, starting with slide five, our summary financial results, first, our GAAP results. Total revenue was up approximately 9%, gross profit was $92 million, up 16%, and gross margins improved 260 basis points to 42.8%.

Operating income for the quarter was $8 million compared to a loss of $3 million in the prior period. GAAP diluted earnings per share were $0.05 in the quarter compared to a loss of -- a loss per share of $0.07 a year ago.

Next our adjusted results, revenue excluding items was up 11%, adjusted gross profit was $97 million as compared to $85 million and our gross margin improved 200 basis points to 45.1%. Excluding items, operating income was $21 million, up 44% year-over-year and earnings-per-share were $0.15 as compared to $0.09 a year ago. In Q1, our tax rate was 40%.

Excluded items in the quarter totaled $13 million, including stock-based compensation of $9 million and intangible amortization of $4 million. In the quarter, we had a small restructuring charge, but no other unusual or one-time spent. Slide six highlights our revenue results as reported and slide seven adjust for our Brazil wind down and FX.

In the U.S., total revenue was $197 million, up 11% driven by growth across all segments. Connectivity was up 52% year-over-year and Marketing Services and Audience Solutions were up 4% and 9% respectively. International revenue as reported was down 7%. However, revenue adjusted for items was up 8%.

In Europe, revenue increased by 19% and every geography grew. However, these strong results were offset by weakness in China, the Brazil shutdown, and the Australia transition. Now turning to slide slides eight through 10, our segment results, first Marketing Services. Total revenue was up 2% and revenue in the U.S. was up 4%.

Revenue associated with Marketing Database and Consulting was up approximately 8%. However, this performance was muted by significant declines in Acxiom Impact. In the quarter, Marketing Database benefited from approximately $3 million of one-time revenue. Globally, gross margin improved to 34.1%, driven primarily by revenue growth.

Segment income improved by 20% to $20 million and segment margin improved 18.4%. This improvement was driven by the combination of revenue growth and cost savings in both the U.S. and international. EBITDA was $28 million, up 14% year-over-year despite the headwinds from Impact. Slide nine, Audience Solutions. A few highlights.

This is the third quarter in a row of topline growth and margin expansion for Audience Solutions, a business which is on its way to becoming a second growth engine for Acxiom. As mentioned, we now distribute our data to 120 digital destinations and together with LiveRamp; we are building two high margin high growth revenue streams.

And finally, this is an attractive high margin business, with gross margins north of 55% on the way to 60% to 65%. For the quarter, revenue was up 8% and revenue in the U.S. was up 9%. Gross margin improved over 300 basis points to 56.8%, driven by the combination of higher digital data revenue and operational cost savings.

Segment income was $25 million, up 4% and segment margin declined slightly to 34% due to continued investments in sales and marketing. EBITDA was $31 million, up 5% year-over-year. Slide 10, Connectivity. As I mentioned earlier, Connectivity had another solid quarter. Total revenue was $31 million, up 52%.

Product revenues, which account for more than 80% of the segment, grew by 62%. Our segment growth rate was impacted by slower growth in first-party GMS and the run-off of legacy AOS contract. We continue to build multiple levers of growth in this segment and all signs suggest these investments are paying off. New customers.

We now have over 300 direct Connectivity customers, up from 212 a year ago. And while small dollars today, we're beginning to enable customers outside of the U.S. to take advantage of our capabilities and technology. Onboarding used cases, today; customers can use their data at over 350 different partner destinations, up from roughly 200 year ago.

This is a big deal. Connections. As the Scott pointed out, the average number of destinations to which customers are sending data has doubled in the past year and continues to grow. Ultimately, this unlocks greater value for our customers and at the same time, drives volume. And finally, new products.

We're pleased with the progress we're making interning innovation into meaningful revenue streams. A year ago, we had essentially no revenue from new products. Exiting Q1, our new product revenue run rate was in excess of $15 million.

Equally as important, our products are being used as a core component of other companies' offerings, connecting them with their partners. During the quarter, gross margin declined to 56.1% due to higher product implementation costs, hosting expenses, and investments in mobile and our international match pools. A few data points.

Our mobile match pool in the U.S. is now in excess of 70 million deterministic matches and we're well underway to building our match pools in both France and the U.K. Despite our investments, operating income was roughly breakeven and EBITDA was positive again in Q1. Next, please turn to slide 11.

For the quarter, operating cash flow was $1 million compared to $12 million in the prior year period. The decline was primarily driven by unfavorable working capital changes in the current quarter due to higher incentive compensation payments. Free cash flow to equity declined for the same reason.

On a trailing 12-month basis, both operating cash flow and free cash flow to equity are up double-digits. Now, onto guidance. First, our guidance excludes items including stock-based compensation, restructuring charges, one-time expenditures, and acquired intangible amortization.

Given our strong performance in Q1, we're raising our EPS guidance for the year. However, we're adjusting our revenue guidance down to account for the lost revenue associated with the sale of Acxiom Impact in the second half of the year. Otherwise, our revenue guidance would have remained unchanged.

So, for the year, we expect total revenue in the range of $850 million to $870 million. We have provided a reconciliation on slide 13 that adjusts for Acxiom Impact and the revenue associated with our Brazil shutdown and Australia transition in both the current and prior periods.

Excluding these items, revenue growth would be between 6% and 8% for the year. GAAP EPS to be in the range of $0.10 and $0.14 and we now expect adjusted EPS to be in the range of 55% to 60% -- $0.55 to $0.60. This compares to our adjusted baseline of $0.55. As we look at Q2, first, we expect revenue to be roughly flat as compared to Q1.

Second, based on our look at consensus EPS estimates, they appear to be high. Before closing, a few additional comments.

The increase in our EPS guidance range was in part the result of the strong Q1, but it was also due to the fact that we have taken aggressive actions this quarter to largely eliminate any overhang created by the sale of Acxiom Impact.

In Connectivity, we now expect segment revenue growth to be between 40% and 45% and product revenue to be between 55% and 60%. While our outlook remains strong, a few of our forward-looking assumptions have changed since we last spoke. First, we now expect first-party GMS to decline faster than we had originally anticipated.

You will start to see this in Q2. Secondly, we had some early Acxiom Onboarding clients that renewed lower rates than were included in our forecast. And finally, as you would expect, we're aggressively driving adoption of our products.

One very positive thing that we're seeing is that some of our customers are building their businesses around our technology. In certain cases, their commitment to us scales over time in line with their business growth. Net, this has changed some of our assumptions as to the timing of these revenues.

Please keep in mind, however, this is committed revenue, and not variable. Next, we expect CapEx to be roughly $65 million for the year or flat compared to last year. We continue to expect one-time expenditures to be as much as $10 million.

This spend is associated with further separation of our businesses to maintain clear lines of sight and optionality. And finally for tax rate, we continue to recommend you use 40%. In summary, we're off to a solid start and remain committed to the goals we outlined in our last call and today.

Double down on Connectivity and digital data in order to drive sustained high growth and global leadership in key markets, create value through performance improvements in both Marketing Services and Audience Solutions, carefully manage our cash and maintain financial flexibility.

And finally, do as we have done for the last four years, return capital to our shareholders. With that, thank you again for joining us today. We look forward to updating you in the quarters ahead. Operator, we'll now open the call to questions..

Thank you. [Operator Instructions] Our first question comes from the line of Brett Huff with Stephens. Your line is now open..

Good morning guys and congrats on a nice quarter..

Thanks Brett..

Just housekeeping deal on the guidance, Warner or Scott, I just want to make sure when you gave us a nice sort of idea of what the email revenue was going to be in the back of the year of $20 million, so I understand the revenue is a push as you take that out. But you didn't give us the profit on the email.

Of the $0.05 raise, roughly, how do -- given that we would -- was the email business profitable? Meaning would we have make up some of the lost EPS that was going away with the sales? So, was it more like $0.06 or $0.07 raise, or how did that work?.

Brett, basically, the email business in the back half is a from an internal standpoint was pretty much flat..

Okay..

Maybe up $0.5 million or something like that. Now, that said, as you know, when you go through a transition like this with any business, the business will absorb certain levels of overhead.

And as we started into this process, we got our heads around that overhang very, very quickly and in particular, in our IT and operations teams, we went after it because we just didn't want to have to deal with the dilution created by the absorption of overhead.

And as I mentioned in the formal part of my remarks, we pretty much have it taken care of headed into the back part of the year..

Okay. And a second question on guidance.

I think you said revenue was flat sequentially; can you just give us a sense of that seasonality? Is it because of this GMS may be declining faster, kind of give us a sense of how that it is?.

Its several things. We went through and analyze that very question, Brett, and in fact, what's happening, our business is in a different place today than it was a year ago. So, for example, if you go back 12 months ago when revenue increased sequentially, think about where Audience Solutions was.

So, you're not to see the same sort of sequential raise just given the progress we've made inside of that business. But we also don't see an increase -- in fact maybe a slight decreasing in Marketing Services.

The other thing I think keep in mind is Impact will be in our second quarter results and that's a big deal because there is a significant fall off in the performance year-over-year. So, a lot of gus-ins [ph], a lot of gus-outs [ph], but -- and that's what led us to the statements we make..

Okay. And then last one from me, the Connectivity you said, updated assumptions, I think originally you were calling for 50% all-in Connectivity growth and now you say 55% to 60% I think.

But then you gave us another stat, first of all, is my first stat right and can you just reiterate the second one?.

So, let me just make sure on -- for the total segment, we said 40% to 45% growth driven by faster than anticipated -- principally faster than anticipated declines in first-party GMS. So, -- and but that the principal driver being that.

The second stat, we try to take a look through the call and take a look at the things which are either legacy or going away. So, if you would exclude, for example, first-party GMS, the royalties we receive and then we also have in the segment a small, but noisy part which is -- which are legacy AOS contracts that we're running-off.

Excluding those two items, our core product growth that we said was up 62% for the quarter and then would be up between 55% and 60% for the year..

Okay. That's all I needed. Thank you. I'll get back in the queue..

Great. Thank you, Brett..

And our next question comes from the line of Dan Salmon with BMO Capital. Your line is now open..

Hey, good afternoon everyone. Two questions, one for Scott, one for Warren. Scott you mentioned briefly your relationship with Verizon in the Audience Solutions business, sounds like as a client.

Could you maybe expand on your broader relationship with Verizon as it looks like Yahoo will be a joining AOL there in their publishing assets and perhaps becoming an area where your clients want to direct their spend a little bit more? And then for Warren, in light of the increase to the share buyback program, could you remind us just sort of the cadence of that program; is it something you want to be doing on a consistent basis or more opportunistically still?.

Hey, Dan. So, for the first, I am really impressed with what Verizon has been able to assemble. AOL has been a publisher partner, MSN is a publisher partner, and obviously Verizon reps that inventory and Yahoo is a publisher partner. So, I think this is going to be a case of one plus one plus one equals far more than three.

I think there's an opportunity for Verizon here to really make some dramatic steps forward in the industry with targeting how inventory is sold. We'd like to be a part of that. And based on the relationship we have, we think we can be a catalyst for that..

And then on the share buyback, I think the answer Dan is yes and yes. So, we -- and I'm just looking at history because obviously, this could change at any time. But I think we have been consistent over the last four years in returning capital to our shareowners and from time-to-time we're going to be opportunistic.

This quarter was an example as a stock checked-off a little bit after -- earlier in the quarter we were more aggressive..

Okay, great. Thanks guys..

[Operator Instructions] Our next question comes from the line of Robert Mattson with Dougherty & Company. Your line is now open..

Thanks for taking the questions, and congrats, again, on the quarter. I got a couple questions.

One is a housekeeping question, you -- I'm sorry I just couldn’t keep up with the pace of the conversation, but put off some stats in the Connectivity about not the guidance, the historicals on product revenue and I missed -- unfortunately missed most of those.

You mentioned that you hadn’t have any -- I afraid what it was, the 80% something rather?.

Right. What we're trying to do and it's a little bit like a question which was asked earlier, I believe, Brett posed it. There are two parts to our business, LiveRamp, that are in -- I'm not going to call it entirely, but call it in a declining your run-off mode.

One we've talked about for several quarters, which is our move away over time from first-party GMS. So, we think you're going to start to see those declines in particular moving into Q2 and then certainly throughout the remainder of the year.

The other part is as we -- when we purchased LiveRamp, we obviously had an effort going on around onboarding and what we were trying to do in the digital ecosystem and everybody -- we just labeled that as AOS.

Inside of AOS, we had some contracts for legacy services and those legacy services, we continue to provide even though they're not a core part of our strategy today because we had contractual commitments to our customers. So, if you take those two elements and then put -- look at the rest of the segment, the rest of the segment is 80% of the total.

And so the 80% of the total representing really our core product revenues today was up 62% in the quarter and our guidance for that part of our business is up 55% to 60%..

Okay, great. Thanks for that. And I got -- you mentioned you're going to, during this quarter, break apart -- not break apart, but reorganize part of the sales group into four groups the agency, publishers, advertising, and software. How should we think about that? I mean -- but I guess one concern I have is making sure it doesn’t be disruptive.

I'm just trying to get a handle on how you're thinking about managing that?.

The way to think about that is that there a lot of levers for growth in Connectivity. And to-date, we've been pulling one, which is grow the installed base of large direct marketers. We're still going to pull that.

But, in addition, we're going to have some salespeople that are dedicated on gaining even more traction with agencies, gaining even more traction with publishers, gaining even more traction with the large enterprise software companies.

And so, I think you'll see that, over time, spur growth from new types of clients who have slightly different needs than major direct advertisers. In addition to that though, there are a bunch of other levers which gives us confidence about the long-term growth rates of Connectivity.

So, I thought one of the coolest stacks in our call today was talking about the number of used cases, so, up to eight, and the digital data revenue 100% growth in GMS, 100% growth. What that suggests is that people are taking their LiveRamp subscriptions and expanding them to more used cases and pushing more data through it.

And you we haven't really started to push on that through our client services organization yet, that's happening organically, that's being driven by client saying this is working, what else can we do.

Warren talked about and I talked as well about new products and so Customer Link, we have 40 sign-ups for our GMS, our data store, we're expanding that by dozens of data suppliers and one year in our new product revenue in LiveRamp is $15 million compared to zero last year and that number should continue to grow.

And then finally the fourth big growth lever is international. So, all this to say is its business as usual for that first growth lever, but then some, and then we're going to pull three other growth levers, in addition to the first..

Okay. Quickly fire-off two quick ones and I'll jump off, let others get on.

If I continue on the sales reorg, is it fair to say then that it's less about transitioning people than more how you're going to hire into new groups?.

Yes, I think that's right. LiveRamp is where we've been aggressively hiring both in engineering and salespeople. And then over time, we've naturally had some salespeople kind of gravitate towards publishers or towards agencies and we're going to allow them to continue to even further specialize..

One thing that I would add, I think, is a compliment to the team at LiveRamp is they work hard at getting over the horizon and really building the capability they will need for where we want to be in FY 2019. And if you wait until -- you have to have the growth in order to sustain your growth rate, it's too late.

So, this is just an example of we've gotten a lot bigger and we have our aspiration where the absolute dollar growth becomes a lot larger next quarter than it was two quarters ago. And if you don't get ahead of this stuff, you then go into pause mode until you finally catch up..

Okay. And then final question. You mentioned about the international and I guess, I'm trying to get a sense for kind of a key -- I hate the term pivot points or key points that you feel you need to reach to really get that to take off.

Is it just laying groundwork on pluming right now and getting your scale? Are there other things that we should keep in mind that are kind of key points for that should start to get better traction? Now that -- I'm obviously just working on smaller numbers, but I'm thinking more meaningful stuff?.

One, we need to get our match pools built. The great news is that we are at scale already in France. We are building to scale in the U.K. Then the second part of what we are doing is really helping to educate the market on use cases and how to use Connectivity. And then the third thing is really building out our connections.

A critical advantage we believe that we had is that many of the key connection points are already partners of LiveRamp and partners of Acxiom. So, all of those companies are thinking globally, too. And -- so what they want to do is replicate the same success that we've had in the United States in the foreign markets.

There are several drivers that you should think about that are very relevant to long-term growth. Number one, I would tell you increasingly every almost -- not every single, but most customers are global. And they don't want to have 13 different solutions around the world.

They want to work with a smaller number of partners who can operate globally, so it's critical for us to give them that capability. The second thing I can tell you flat out is that data-driven marketing is every bit as important for a CMO or a CEO in London or Paris as it is in New York City. They're on top of it.

I think, increasingly, the world is coming to understand that the big Internet had been perfecting data-driven marketing since the day they opened the doors. And if you're not on top of it, you, by definition, are just going to get further behind.

So, some near-term things structurally that we are doing to get ready for it, taking advantage of our capabilities that we already have and really educating the market on use cases..

Great. Thanks. And congrats again..

Thank you..

Our next question comes from the line of Adam Klauber with William Blair. Your line is now open..

Hi, thanks. Just one or two questions.

The enhanced partnership with Google and the new integration with Facebook, obviously, those are great signs, I mean how impactful could those be down the road and how long will it take us to see those efforts ramp-up?.

Yes, I don't want to get it out in front of our 2018 guidance, but we view those as meaningful. Facebook and Google and now Verizon are three of the big drivers of online media consumption.

And if you go back a year or two ago, I think there was a fear, never voiced by us, that they would be our competitors over time in recognition, identity management. That hasn't proved to be the case. Over the course of the last few years, we've taken small partnerships and evolved them into much more sophisticated partnerships.

And as they succeed, we're a part of their success. So, I look at this as just another step forward in the journey. I think it's going to be meaningful growth potential, but again, I think it's too early to peg a number to that yet..

Okay. Thanks. And then as far as business focus and divestitures, Impact, obviously, makes a lot of sense. You've had a string of transactions over a number of years.

Are there more to come or do you think this is one of the last significant divestitures?.

Yes, that's funny. I had a list of when I started of what we wanted to accomplish from a divestiture perspective. And increasingly, we've put checks next to all of them. I'm a big believer in focus. Burger, shakes and fries; before you put McCookies or McSalads on the menu, better make pretty darn sure you're making great burger, shakes and fries.

I'm really happy with our three business units right now and what each contributes to our overall success. Each one of them has really strong leadership. Each one of them is generating growth and each one of them is catalyzing the success of the other two. Now that said, we're always going to evaluate our portfolio.

And the other promise I will make is I will never comment on the potential acquisitions or divestitures we may consider..

Okay. Thanks a lot..

[Operator Instructions] Our next question comes from the line of Bill Warmington with Wells Fargo. Your line is now open..

It's Bill DiJohnson on for Bill Warmington. Congrats on the quarter guys..

Hey Bill. Thanks..

So, I just had a quick one on the segment income for Connectivity. Obviously, you guys have a lot going on there. You still managed to bring it to breakeven this quarter. I think we were expecting a higher level of investment.

Is this just a timing thing or have we reached a sustainable level and we'll take off from here?.

I'd say Bill that we're going to look -- our bottom-line is going to look a lot like this past year, meaning FY 2016. So, I would expect pretty much around a breakeven level, but maybe a slight -- breakeven to a loss, but probably not as heavy as you were anticipating.

One thing that I can tell you is that what -- just as Scott said, one of the things that our team at LiveRamp focuses on is making sure that they are focused, but at the same time, making sure that we are investing. And we believe that we are investing appropriately.

And so the net is, I'd expect the losses to be roughly -- to look a lot like they did last year..

Okay.

And can you just remind us what you're expecting or what these investments will look like? Where you're focused?.

I think on all the things that Scott mentioned, first of all, new products; secondly, what other the things that we don't directly mention because it's not in income statement line is stickiness.

So, when you think about a lot of what we are doing around customer support, around our match rates, around building our mobile match pool, all of which are investments, those are making the user experience better and creating better ROI for our customers and therefore, enhancing the overall -- enhancing our overall portfolio and user experience, building the benefit of being part of the network.

So, think about new products, think about new geographies, think about mobile match rates, and then also enhancing the stickiness of our product..

Okay. All right. Thanks guys..

We have a follow-up question from the line of Brett Huff with Stephens. Your line is now open..

Hey guys. Just a couple more from me, if we could. Can you tell us a little bit about whether the email sale will negatively impact match rates? I know the email is sort of a consistent key per digital persona. I think others in the market may use their email marketing businesses sort of to help build out their match rates.

Does that impact you at all?.

It will not impact us one bit..

Okay. And then in terms of Marketing Services, that does include some consulting businesses and how does the visibility look for the rest of the year? It sounds like you guys feel good about it. You reiterated guidance and seem to expect continued good progress in Marketing Services.

But any comments on that on visibility?.

I think we have increasingly better visibility into all of our businesses and including Marketing Services. I would look in Marketing Services; you're going to see the growth rates slow. So, -- and I'm just going to exclude, Brett, Digital Impact from the year.

I believe on our last call, we mentioned that Marketing Database and Consulting together would be sort of flattish and that is our continued expectation. It could be up a little bit and it could be down a little bit. But that's our expectation for the year.

The great news is that our team is doing the right thing or the right set of things, focusing their services on things that our clients want. We've enhanced our product portfolio with new products that are well-equipped and suited for the digital ecosystem and we're continually focused on driving long-term margin improvement..

Great. That's all I need. Thank you..

Brett, this is Scott again. I just want to go back to your first question, because I don't want to be glib in my answer in that. By divesting email, we'll not impact our match rate one bit. However, what I want to emphasize is it has the possibility to catalyze it.

And what I mean by that is one of the obstacles that we've had is that we have been partnering with major agencies and enterprise software companies to provide Connectivity in data services.

But at the same time, they're curious -- well, if you're our big partner, why are you competing with us on email? And so by eliminating that single issue, I think it allows us to pursue even tighter integrations with many of our most important partners and potentially further scale our Smart Reach capabilities.

So, rather than think about this as a constraint, which it's not, think about this as a catalyst..

Okay. That's all I needed. Thanks guys..

At this time, I'm showing no further questions. I would like to turn the call back over to Warren Jenson for any closing remarks..

Terrific, everyone. Thank you so much for joining us. We look forward to chatting with you over the next couple of days and follow-up calls and, most importantly, to reporting our results as we move forward. Thanks for joining us..

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Everyone have a wonderful day..