Lauren Dillard - Head of IR Scott Howe - President & CEO Warren Jenson - EVP & CFO.

Bill Warmington - Wells Fargo Brett Huff - Stephens Dan Salmon - BMO Capital Markets Kip Paulson - Cantor Fitzgerald.

Good afternoon, ladies and gentlemen and welcome to the Acxiom Fiscal 2018 First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Ms. Lauren Dillard, Head of Investor Relations. Please go ahead..

Thank you, Cristal. Good afternoon and welcome. Thank you for joining us to discuss our fiscal 2018 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 sections 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. In Q1 Acxiom achieved another quarter of both top and bottom line growth. Excluding divestitures and the impact of foreign exchange, total company revenue was up 6%. Topline highlights included live ramp which continued to hit on all cylinders and our ongoing progress in international.

Beneath the topline we delivered meaningful gross margin improvement which allowed us to fund incremental investment and connectivity, and total company operating income was up 6% year-over-year. Before we dive in, let me spend a minute on our outlook. We are maintaining our EBITDA and EPS estimates for the year.

Our connectivity growth outlook also remains unchanged. However we now realize our projections for Marketing Services and Audience Solutions were too aggressive. This is disappointing. In our Marketing Services segment, the timing of bookings will be slower than we originally forecasted.

In addition, the impact of previously discussed pricing model changes will slow growth in Audience Solutions in later quarters. Given this, we now expect topline growth for the year to be between 7% and 8%. This represents a strong outlook relative to the past decade of growth at Acxiom but a reduction from our initial plan.

During my portion of the call today, I'd like to provide an update on each of our segments and in that discussion touch on some of the overarching themes impacting our outlook. Marketing Services, since we reorganized into divisions at the beginning of FY '16 our Marketing Services segment has made significant progress.

Over this period, our marketing data base business which represents over 90% of segment revenue and substantially all the profitability has grown in eight of the last nine quarters. Segment profits and cash flow which we think are the right valuation metrics for this business have also improved considerably.

Most notably, operating income has increased by nearly 20 million over this period, a testament to our delivery efficiency and ongoing automation and standardization efforts. We have four main goals in marketing services. Our number one goal every quarter is to maintain and delight our existing clients.

This is the key to protecting our cash flow and on this important measure we continue to experience strong success. During the quarter, we closed several key renewals including renewals with two of our long-standing financial services clients. Our second goal is to add new logos to the marketing services client roster.

To achieve this goal, we've emphasized both new pipeline development and the conversion of live ramp and Audience Solutions clients in the marketing services clients over time. These efforts are what will fuel longer-term topline growth.

While we have significant potential here, we need to win more and win faster which will spur acceleration through the course of FY '18.

On our last call, we talked about new logo wins with opportune and embrace home loans and in the last month we won two more new logo deals including a large multiyear contract with the children's place to help enable its personalized customer contact strategy.

This multiyear deals spans all three of our divisions and includes marketing database, third-party data, identity resolution and identity link for on-boarding and measurement. Given its marquee client roster and trusted relationships, a third goal for marketing services is to catalyze our other divisions.

An impact that isn't directly visible in the Marketing Services results. For example, virtually all our recent Marketing Services new logo wins have also fueled growth in our other divisions. A final goal for Marketing Services is to defend and grow its cash flows.

This is the single most important measure of success for this business and we are delivering on it. Despite the topline pressure, Marketing Services segment margin was up over 300 basis points in Q1. Our recent progress in adding new meaningful clients is cause for optimism and this success must continue.

As bookings convert to revenue, we put ourselves in a good position to exit this year on a growth trajectory. Moving on to Audience Solutions. Audience Solutions is a business that continues to demonstrate DaaS like characteristics, and increasingly we are tethering it more tightly together with our connectivity or SaaS business.

Given their similar operating models, we believe that over time SaaS and DaaS belong together. Both have high initial fixed costs, incredible marginal profitability, and debt maturity or high-growth high margin businesses.

Combined, Audience Solutions in connectivity represent more than 50% of our revenue and together are growing at 20%, with 20% plus operating margins. The list of other software companies that fit that bill is pretty short. On past calls, we've talked about shifting business models.

Specifically we said that as our digital data business evolves, some revenue-sharing arrangements would convert to licensing models. This transition is taking place much quicker than we anticipated and will create a headwind to growth this year. For the quarter, Audience Solutions was up 3% and generated meaningful margin improvement.

We have several initiatives in place across Audience Solutions to offset some of the decline caused by the business model transition. During the quarter we added several new data services partners including Pinterest and PushSpring.

In addition we recently announced a new data integration with LinkedIn allowing marketers to build segment, to build segment and reach customer on and audiences through LinkedIn's matched audience tool. In total, our data is available to support targeted advertising at over 140 online and mobile publishers, ad tech platforms and TV operators.

As publishers and platforms outside of the big walled gardens become more sophisticated with their use of third-party data for targeting, we believe we are well-positioned. Another topline growth initiative is to expand our global data footprint.

During the quarter we extended our coverage to include several new Eastern European and Middle Eastern countries. Our data products are now available in over 60 countries representing close to 2.8 billion consumers worldwide. We also recently launched a full suite of products in Mexico including identity, data and collectivity solutions.

As part of this initiative, we expanded our partnership with Four Info to deliver more precise cross channel audience targeting and measurement to the Latin American market.

With that spend in Mexico projected to grow to 6.2 billion by 2020, this launch enables our clients and partners to perform more effective people based marketing across Mexico and at the same time positions us to take advantage of the growing market opportunity in that region.

In summary, we continue to believe Audience Solutions is a long-term growth business with strong DaaS margins but the pricing model transition will continue in the back half of this year.

Switching gears now to connectivity, our top goal for connectivity to continue to grow market share and as the business scales we expect it to generate meaningful levels of bottom line improvement. Connectivity had another exceptional quarter and the business continues to demonstrate its strong network effects.

In fact Q1 was a record bookings this quarter and we are progressing across all our key growth initiatives. A few highlights from the period. Segment revenue was approximately $45 million up 44% year-over-year, a reacceleration from Q4. We signed over 40 new logo deals and that work with approximately 450 direct clients worldwide.

We recently added another major agency holding company to our client roster. We now work with agencies from all six of the top holding companies and are powering identity resolution across two of them. During the quarter we also signed several key renewals including our largest ever brand contract.

We exited Q1 with a revenue run rate of more than 180 million up from 170 million at the end of Q4 and up 50% year-over-year. We continue to grow our partner ecosystem and added over 25 new integrations during the quarter including new partnerships with commerce signals and performance horizon.

We also continue to expand our existing strategic partnerships and are particularly excited by the traction we are experiencing with Google Customer Match. People based search is a complete game changer for the industry and marketers are beginning to take notice.

Google Customer Match has quickly become one of our most popular destinations and we now have over 80 clients activating data against this use case and generating real results. Clients are experiencing a meaningful increase in ROI by doubling click through rates and improving return on ad spend by as much as 70%.

Moreover, marketers who pay our Google Customer Match with the identity link data append feature can further improve their ROI by deterministically matching more of their CRM audience to their search campaigns. In fact, marketers leveraging this feature are able to target up to six times more customers compared to using customer match alone.

The finish line case study which Google recently published is a powerful example of this use case. Looking to reengage with past customers, finish line leveraged Google Customer Match to generate an increase in both clicks and reach.

Partnering with LiveRamp, FinishLine was able to increase its match rates by 2x, improve its click through rate by 235% and generate a 70% higher return on ad spend. One of our top imperatives this year is to establish an identity currency for the ecosystem.

On our last call we discussed the launch of the BidStream Consortium and we're making good progress with App Nexus and MediaMath to get it off the ground.

In addition, we recently announced the official launch of IdentityLink for publishers providing publishers with the people based monetization platform and allowing marketers to extend their people based marketing initiatives across all publishers large or small.

Over 200 publishers are now using identity link which unifies our identity resolution capabilities with the Arbor and Circulate acquisitions. If we continue to execute, we believe these initiatives will increase our match rates, improve our cross channel capabilities and accelerate our ability to expand internationally.

Our momentum leaving Q1 is strong and the proof points are evident. We believe this is a network business where the value grows exponentially with scale.

Our progress to date has been very encouraging and we believe that if we continue to execute across these dimensions and scale intelligently, we are well positioned for continued business success in FY '18 and beyond. Finally let me talk briefly about international. Under Warren's leadership, we are making great progress outside of the U.S.

Our international business again was a bright spot for the company. In the U.K. and France LiveRamp continues to gain good traction and our pipeline remains strong. We recently signed a new onboarding deals with two large automotive manufacturers and we now have approximately 10 clients leveraging Google Customer Match in Europe.

We also are making good progress building our publisher network and today have extended over 150 publisher contracts to include the EU. Just last week, in partnership with the Adobe Experience Cloud we announced the launch of Connected Spaces in Europe.

Connected Spaces is a global solution designed to deliver more relevant customer experiences at retail, travel and leisure location such as airports, malls, sports stadiums, concert arenas and resorts.

Powered by our capabilities and identity resolution and marketing database services, this solution enables locations to better recognize and engage with the thousands of customers coming through their doors. Heathrow airport which is the single largest retail center in the U.K. is a great early example.

By arming its vendors with better data and insights, Heathrow delivered more relevant communications and offers to its customers resulting in an increase and spend of up to 25% for engaged customers. In APAC we closed the new data and connectivity deal with Nine, a top Australian publisher.

Clients can now onboard their first party data and leverage our third-party data to reach consumers across the Nine Digital Network. And lastly in China, we sign a new connectivity partnership with Baidu rounding out our existing partnerships with Alibaba and Tencent.

Before I conclude, I’d like to quickly touch base on our business separation and portfolio readiness efforts. This is a topic that generated a lot of questions following our last call. I am pleased to report that our business separation is nearing completion and we expect our one time spend to drop considerably at the end of Q3.

Let me remind you why we did this work. As we said here today, we like the shape of our portfolio. Each of our businesses is a leader in its respective sector, each also catalyzes the others and we believe each has ample room to grow and improve.

That said, since arriving at Acxiom I would consistently pushed for clearer lines of sight into each of our businesses so that we can make more effective investment, operating and portfolio management decisions. Rather than be constrained by the past, we want to be prepared for the future.

This is simply the next logical step in that effort so that we maximize our strategic flexibility and are never structurally limited in what we can do to maximize long-term shareholder value.

We are now reaching a place where our portfolio has clean standalone financials, clear accountabilities and true optionality which we fundamentally believe is the right way to run our portfolio.

In closing while we certainly have work to do in each of our divisions, I remain confident in our business and the steps we are taking to generate even greater financial success. Thank you again for joining us today. We look forward to updating you on our progress in the quarters ahead. With that, I will now turn the call over to Warren..

Thanks Scott, and good afternoon everyone. In my portion of the call today, I'd like to mention a few highlights, then run through our results and finally update our guidance for FY '18. For the quarter revenue was up 6% marking the seventh sequential quarter of 5% plus growth. Gross margin was 50% expanding close to 500 basis points.

Gross margin was also up in every segment. Connectivity had an exceptional quarter. We exceeded our bookings target and made great progress against our key growth initiatives. International revenue was up 15% marking the seventh consecutive quarter of growth.

International connectivity revenue increased by more than 50% driven by strong growth in Europe. During the quarter, we refinanced our debt giving us more flexibility in over 30 million of added near-term liquidity. All that said, we're disappointed to lower our topline guidance for the year.

This reduction is primarily driven by reduced near-term bookings expectations in marketing services and to a lesser extent by a slightly lowered outlook for Audience Solutions. That said, our framework for value creation remains intact.

In connectivity, both our top and bottom line guidance remain unchanged and in marketing services and Audience Solutions, we are maintaining our EBITDA outlook for the year at our bottom line guidance.

In summary, a solid quarter, no change to key valuation metrics but a lowering of our short-term topline expectations for marketing services and Audience Solutions. That said, absolutely no change in our enthusiasm for our long-term opportunity. Now onto the first quarter, starting with Slide 5 our summary financial results.

First GAAP, total revenue was down 1%, gross profit was $99 million up 7% and gross margin improved 360 basis points to 46.4%. Op loss for the quarter was $6 million compared to operating income of $8 million and GAAP loss per share was $0.02 compared to earnings per share of $0.05 a year ago.

Next our non-GAAP results, adjusted revenue was up 6%, gross profit was $106 million up 9% and gross margin improved 480 basis points to 50%. Operating income was $22 million up 6% year-over-year and earnings per share were $0.14 as compared to $0.15. In Q1, our tax rate was 40%.

Excluded items totaled $28 million including stock based comp of $15 million, intangible asset amortization of $6 million, and business separation related spend of $7 million. Slide 6 highlights our revenue results as reported and Slide 7 adjusts for the sale of Acxiom impact, the Australia transition and FX. Adjusted revenue was up 6% in the quarter.

In the U.S. revenue as reported was down 1%, revenue adjusted for the impact divestiture was up 5% driven by continued strong growth in connectivity. International revenue as reported was up 2% and adjusted revenue was up 15% driven by our performance in Europe.

Most notably a strong quarter for connectivity in France where revenue increased by more than 200%. Our match network in France is now greater than 15 million with match rates in excess of 40%. Similarly in the U.K. our match network is also more than 15 million.

In Europe we recently announced a partnership with Google Customer Match and we're excited the two of our launch customers for Samsung and Heathrow Airport. Now turning to Slides 8 through 10 our segment results. First, Marketing Services.

Revenue as reported was down 17%, revenue adjusted for impact was down 6% due to softness in both marketing database and strategy and analytics. Please remember that in a year ago quarter we reported 3 million of one-time project-related revenue. In addition we are now feeling the impact of price compression associated with a few large renewals.

This pressure will continue to impact our topline throughout fiscal '18. Gross margin improved modestly to 34.2%, segment income was $20 million and segment margin improved 320 basis points to 21.6% driven by productivity in the U.S. Adjusted EBITDA was $26 million down 7% and EBITDA margin improved to 29%.

As a reminder in the appendix to our slide deck we've included a historical view of Marketing Services excluding impact. Slide 9 Audience Solutions. Revenue was up 3%. This represents the seventh consecutive quarter of growth. Revenue from our digital publisher and platform partners was approximately $18 million up over 70%.

Again as a reminder, our digital revenues and corresponding growth rates will be pressured as a result of transitioning pricing models. We expect this transition to noticeably impact our digital revenues beginning in Q3. Gross margin improved 550 basis points to 62.3% driven by higher revenue and operational cost savings in both the U.S.

and international. Segment income was $29 million up 14% and segment margin improved 370 basis points. Adjusted EBITDA was $33 million up 8% and our EBITDA margin was 44.2% an improvement of 230 basis points. Slide 10 connectivity, revenue of $45 million grew 44% driven by acceleration in both the U.S. and in Europe.

During the quarter, LiveRent added over 40 new logos. Gross margin expanded 480 basis points 61%, segment income was approximately breakeven as we continue to invest in product and sales and marketing. Adjusted EBITDA was $2 million a modest improvement over the prior year. Next please turn to Slide 11.

For the quarter, operating cash flow was $5 million compared to $1 million in the prior year. This increase was primarily driven by higher adjusted cash earnings. Free cash flow to equity improved to negative $6 million compared to negative $22 million in the prior year. Both periods were impacted by incentive comp payments.

On a trailing 12 month basis, operating cash flow and free cash flow to equity were up 17% and over 900% respectively. During the quarter we also refinanced our debt. Our new facility consist of $600 million revolver of which we've drawn $230 million to repay our previous debt balance. The interest rate is similar to our previous arrangement.

With this facility however, there is no quarterly debt service resulting in a liquidity benefit of 30 million per year. Business separation, before jumping into guidance let me address our spending this quarter associated with business separation. This was obviously a big quarter and we had a lot going on.

There are three specific questions I would like to answer today. First, why does it cost so much? In short, it's complex to create separate operating units that can standalone when divisions have operated together for decades. Consider that, several tangled activities must be taken apart and then reconstructed independently.

This is particularly true in functional areas like IT and G&A. Next hundreds of key business processes have to be mapped and then remapped into a new process. As an example think about order entry, delivery and customer service. Asset ownership needs to be determined. Historical financials and auditable schedules researched and prepared.

Operating intercompany agreements must we drafted and the list goes on from there. Next what will we get when we are finished? Separate auditable financial statements including balance sheets, operating and lasting intercompany agreements, increase clarity, heightened accountability and stronger capital ownership and lastly optionality.

Specifically if the time comes that a divestiture or strategic partnership makes sense, we have the capability to act on that opportunity expeditiously and then complete the arrangement within a reasonable timeframe. Third, when will we be finished? We expect to be in a position to complete this work sometime in the third quarter.

In summary, this is a lot of work but we are near the finish line for this important phase of our journey. We believe this is the right way to run our business and the right thing to do for our shareowners. Now onto guidance, please turn to Slide 12.

As a reminder our guidance excludes items including non-cash stock compensation, purchased intangible asset amortization, restructuring charges, and separation costs. We now expect total revenue of between $920 million and $930 million as compared to our prior guidance of approximately $945 million.

GAAP loss per share of approximately $0.06 and adjusted EPS to be roughly $0.80. We've included our expected revenue facing on Slide 13 which remains consistent with the phasing we provided on our last call. Next, let me provide some additional perspective on our segments. Connectivity, our segment guidance remains unchanged.

We continue to expect revenue growth to accelerate in meaningful margin improvement. Audience Solutions our bottom line guidance remains intact. We continue to expect margins to be flat. In addition there is no change to our outlook for EBITDA. We are however slightly lowering our full-year topline expectations.

We now expect Audience Solutions revenue to be up low to mid-single digits due to transitioning digital revenue models. Marketing Services, here our bottom line guidance also remains intact. We continue to expect segment income to increase by single-digits. In addition, our outlook for EBITDA remains unchanged.

That said, we now expect revenue to be down low to mid-single digits. As mentioned, this is a result of lowered near-term bookings expectations. What we would never discount a reduction in our top line guidance there are many positives in this business.

Most notably, we're winning new clients, we are innovating, and we expect to generate even higher returns this year, higher gross margin and expanding operating and EBITDA margins. To reiterate and elaborate on a few other items. For the year, we now expect CapEx to be approximately $65 million down from $70 million.

We expect stock-based comp to be roughly $64 million. As a reminder, over 40% of this expense is associated with acquisitions. For a tax rate we recommend you continue to use 40%. We continue to expect our share count will be approximately $83 million. The share count assumes no buyback. We now expect onetime expenditures to be roughly $15 million.

These expenditures are entirely associated with business separation. We expect restructuring charges of roughly $5 million in Q2 associated with further real estate consolidation. With that, let me close with four final thoughts. First, Q1 was a solid quarter and we're in a strong position to deliver our bottom line commitments for the year.

While we are disappointed to lower our revenue guidance, our valuation framework is intact. Connectivity is off to a great start and our EBITDA outlook for both Marketing Services and Audience Solutions remains unchanged. We are innovating and leading our industry-leading approach to connecting the digital ecosystem, continues to build momentum.

Finally, and most importantly, we remain enthusiastic and confident in our long-term opportunity. Thank you for joining us today. Operator, we will now open the call to questions..

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

So I wanted to start out by asking about Marketing Services.

What are you seeing in terms of the bookings trends, and how long do you think it will be before you get that to a breakeven growth level?.

Bill, I’ll go ahead and start, and then Scott can jump in. I think the one thing that we wanted to start off with everybody on the call is there are a lot of positive things going on and have been going on for several quarters in the business.

Obviously, we don't like the fact that we’re taking revenue guidance down and that some of the bookings trends have shifted out. The good news is that we are winning clients and that our guidance is not being impacted because we've lost clients. In fact, we are winning clients.

What we did see though is, as we sat down to prepare our projections at the end of last year we reviewed our backlog, we looked at the timing of bookings and made certain judgments.

As we got to the end of the first quarter and looked at our bookings in the first quarter and then met with our sales teams and looked at expectations for the second quarter and third quarter and beyond, it became clear that our original assumptions were too aggressive.

And we felt we had to make a call to reduce our revenue expectations for the full fiscal year though what that the case was, was that we were too aggressive in the timing for those bookings.

It was not about the projection of losing clients, in fact, it was simply a matter that we were too aggressive in our assumptions relative to the timing of bookings. Scott, you’ve anything to add? Go ahead Bill..

I was going to ask a clarifying question which was, are you seeing the softness more in the marketing database side or more on the consulting analytics side? Or is that not the right way…?.

That revenue is marketing database, and it’s over 100% of the profitability. So that's where the softness is. And just to put things in perspective, Bill, if you look at the last few years in this business, I think we split in divisions, we’re coming up on the three-year mark right.

And if you look at 2015 to 2017 marketing database in the U.S., it went from 336 million to 360 million. So that business is growing. And of the last nine quarters, marketing database has grown eight of the last nine quarters.

And importantly, if you look at our margins and operating income which is where I think we put the most focus, our operating margins are up 500 basis points or over 20%. And our operating income is up $18 million. In 2015, it was $62 million. Last year it was $81 million. So that's growing at a CAGR of 14%.

And we’re winning clients, Embrace Opportune, The Children's Place. So the takeaway for me is that I remain optimistic about this business. We’re disappointed in our bookings timing, and we need to pull more of these across the finish line so that we can end the year with the window at our back..

And, Bill, let me just add to your question because I think it's important for everybody. If you look at the next several quarters, I think Q2, Q3 look a lot like Q1 on the top line. Q4, you could start to see things ease up as the comps – just look better and we start to work through some of the price compression that we felt.

So Q2 and Q3 are going to look a lot like Q1..

For specifically Marketing Services..

Specifically Marketing Services, yes..

And just to add a final bit of color on that, and I think we talked about this before. But part of the growth trends are due to price compression from the fact that over the last couple of years, we did a really good job of renewing all of our top clients.

The good news is from where we sit right now, all of our top 10 Marketing Services clients are now under contract through at least year-end. So there's no other significant renewals happening right now..

And then a follow-up question on the Audience Solutions piece of business. In terms of the transition to the new revenue model, it sounded a vaguely reminiscent of the transition we went through in the AOS LiveRamp going from the gross media spend mile to the subscription model.

But I just wanted to ask a little detail there in terms of what's happening there, why that's happening now. You mentioned that it should start in Q3.

It’s when you really see the impact and how long before we anniversary that impact? Is it relatively short or long?.

There is several things that we’re not going to be able to completely answer your question because today we’re not to give guidance going into FY19 obviously. One of the things that we’ve tried to do and will continue to do is to tell everybody what we see well ahead of the quarter in which it happens.

And so we felt it’s important to let everybody know what we're seeing relative to timing in Q3. So that's why we’re bringing it up. So in terms of the first quarter where you're going to see a major impact, it's going to be Q3.

Now, as to the question of how long will it take to anniversary the impact, well, we have a lot of growth initiatives going on inside of Audience Solutions to help offset some of that impact and I’ll name a few. First of all global data, our data Scott mentioned this, is now available in 62 countries, and our team in the U.S.

is working with every one of our teams globally in order to make our data available to existing and prospective clients. Today, in the digital channels, our data is available in over 140 different digital locations. A year ago, I believe the number was something like 70. And two years ago, it was zero.

Third, every day, there are new use cases being made available. And the pressure that we are feeling, I want to reiterate, is very isolated. It is concentrated, and the concentration is pinpoint concentration. But the pressure and the trend in the use of data is a global phenomenon that is continuing upward.

Every digital publisher, digital platform and company are increasingly using data in their marketing and taking advantage of the skill sets that we can bring to the table. Though we think the pressure broadly is in our favor, but the pinpoint pressure and concentration of that pressure is significant.

It is absolutely worthwhile to bring up on this call because it will be significant in Q3, and we wanted everybody to be aware of it..

Your next question comes from the line of Brett Huff with Stephens. Your line is now open..

One is a product question and Scott, I think you mentioned it, and I'm not sure this is the right number about 25 people, I think that was the data coop business.

Can you give us some more insight on that it's one thing that we get a lot of questions from investors on, and if this is really kind of a big part of the network affected that you hope that you can establish.

Can you give us an update on that?.

Yes, just to clarify your question, are you asking about people-based programmatic, or are you talking about SmartReach?.

I was talking about SmartReach but I'm happy to hear about both..

Yes, so let me start with SmartReach so we now have over 80 clients participating our recommendation to any new client to the franchises that they are to do this from the Getco because as we’ve talked in the past the incremental match rates that we see can be up to 30% in some cases more.

So this is a really strong differentiator for us and what good is having a lot of segmentation information and targeting capabilities if you can actually apply them to the audiences you see. So SmartReach helps people reach more consumers regardless of what channel they use and you know adoption continues to increase there.

On the people based consortium I will tell you that that is moving as fast as any development in the industry that I been involved with over the last 20 years once we announced it we had probably a dozen inbound phone calls of people asking if they could participate as well.

Dave Yaffe who came over to us from Arbor he is just an absolute tech superstar he is leading the charge from our side there. We haven't launched that yet, but I think I think that will happen over the next quarter or so.

And you know like customer match I'm not sure that we’ll see kind of near-term revenue benefit from this as much as we’ll see this attract new partners to our portfolio and just increased use rate of our LiveRamp but we’re very bullish on this..

There is a question for Warren since you went through the LiveRamp numbers I think they accelerated to 44% and in the live call I think you said about 50% was the annual expectation for the growth rate you said that was still in the card is that still the right number to think about?.

Yes, what we've said is we said growth would accelerate and then we said it could be as much as 50% would say – our guidance is the same what we’re sticking with is growth will accelerate it could be as much as 50% but our guidance is our growth will accelerate Brett..

You said, you mentioned CapEx is going to be a little bit less than you thought where are we trimming or what are we prioritizing differently and kind of give us some inside into that?.

Most of the prioritization is coming out of I’d say out of either what we’re doing corporately or in marketing services to a lesser extent than in audience solution. If you look at the first quarter where we’re increasing CapEx and where the dollars are going is to where the growth is LiveRamp as we continue to build capacity and grow.

So it's really about being more efficient in the core one of the things that is allowed us to really drive a tremendous amount of productivity is what we've been doing in IT our entire IT team who led by Janet Cinfio has just done a terrific job working with each of the divisions to take cost out, drive productivity but at the same time drive a much higher level of performance than we enjoyed historically.

And with that we’re also looking for ways to trim CapEx and that's just benefiting everyone..

And your next question comes from the line of Dan Salmon with BMO Capital Markets..

I guess my question is around the first question around the pricing pressure on the database side how much of that is related to secular change across the industry versus perhaps competitive issues and we seen for example Epsilon sort of revamped its approach to the market there lately.

But I’d just be curious on certain individual competitive issues versus secular.

And then Warren could you just maybe spend a little bit more time explaining the transition of the pricing models that is driving the pressure in the digital revenue on audience solutions maybe just sort of step-by-step through why that specifically is resulting in a lower guidance? Thanks..

On the pricing pressure I think it is entirely what I would call typical technology trends very consistent with everything that we've seen over the last 20 years it’s essentially Moore's Law for technology that anytime something comes up for renewal clients expect you to get more efficient.

And you see that in our pricing the good news is we've also carried that through into standardized, modularized architecture and more efficient delivery. So we more than compensated for that in the bottom line.

So I don't see anything different than I've seen since I've joined Acxiom and again the good news is that we've been able to secure all of our major renewals over the past few years the big ones and I think we’re in a good spot for the rest of this year..

And then Dan let me try to explain I guess the question is what changed and why that's causing us to slightly lower our guidance again I want to iterate the pressure that we’re seeing is highly concentrated and the best way for me to articulate concentration is just call it pinpoint concentration.

And presume that we have a wonderful relationship and a big global relationship where we feeling this pressure. Nonetheless we are going to feel real revenue pressure and in several elements of our relationship.

In terms of our planning we had a phased approach built-in and it became clear during the first quarter that at phased approach was going to be accelerated.

And so the slight revision to our guidance is reflective of more and accelerated approach as opposed to a phased approach that we had built into our planning in May, but again that's a slight revision to our guidance nonetheless a revision..

[Operator Instructions]. Your next question comes from line of Kip Paulson with Cantor Fitzgerald. Your line is now open..

First could you just remind us what your thinking is on the total addressable market for the connectivity or LiveRamp business, how much addressable ad spend and how many thousands of clients can you target and how many potential integration partners.

And then I have one follow-up?.

There have been some studies out there that have pegged the addressable market in the in the billions.

Our belief is that it significantly higher than that we think we’re riding a secular trend here that companies who have been successful in recent years in many cases have been very successful because they’ve done good job of ingesting data, determining what it means and utilizing that it for their business advantage.

Well imitation is the most sincere form of flattery as the saying goes. And we believe that’s becoming a secular way.

So anything that can be powered with data from advertising at any touch point whether that search or site personalization, television, addressable radio to things like customer interactions overall call center, or point-of-sale and retail all of those touch points all of those customer interactions within the marketing world we think will be more effective when powered with data that's why we work so hard to build our grid of activation partners.

Longer term you heard me talk a little bit about this in the last call, we also think there is an opportunity for us to expand beyond marketing not in a weird way, but in a way that is driven by our clients at their request because they're doing things with marketing and they're saying hey you have data that can power other decisions for me could you extend your capabilities into these areas.

So you don't have to do or play around with back of the envelope math too much to say what happens if you take half a percent or a 10th of a percent of all advertising well that becomes a much bigger number.

And if you expand that to all of commerce it becomes an even bigger number and then if you do some adjacent sectors again it becomes a much, much bigger number. So we think long-term the TAM is in the tens of billions but obviously the market we’re building the category and it will take time for that true market to develop..

And then one other question I had was, I just wanted to get your thoughts on Apples intelligent tracking prevention or ITP which is coming to Safari this fall it apparently tries to block third-party trackers from capturing across like browsing data and when combined with other efforts to block third-party cookies.

Just curious what impact or any you see from these developments on your business?.

We don't anticipate there will be I mean it’s something we’ll watch closely, but remember we resolve everything to an individual and we use a federated group of permissions. Our clients are collecting permissions on their website and so we believe our identity resolution is much deeper than what Apples eliminating here.

That said I know that there are people in the ecosystem who rely primarily on cookies that will be impacted by this, but our initial analysis suggests that this isn’t going to have a material impact on us..

And just one more if I could gross margins expanded nicely – are there any changes to your target gross margin expectations for any of these segments after this quarter?.

We’ll be giving I guess again we’re not to get into FY’19 today the impact of reduction in first party in terms of digital data could impact gross margins in audience solutions. But overall as other sources of digital revenue as those grow should help to offset that, but other than that no changes..

And there are no further questions at this time. I’ll turn the call over to Warren Jenson for closing remarks..

Terrific again we want to thank everybody for joining us today. We’re pleased to report another solid quarter and then I would just reiterate we believe we’re in a very strong position to deliver on our bottom line commitments for the year.

Today we are disappointed to lower our revenue guidance but at the same time we believe our valuation framework is intact, our connectivity is off to a great start and our EBITDA outlook for both marketing services and audience solutions remains unchanged.

We’re innovating and we’re leading and most importantly again we would reiterate that we’re both enthusiastic and confident in our long-term opportunity. Thanks a million for joining us today. We look forward to talking to you over the next few days..

And this concludes today’s conference call. You may now disconnect..