Good day, ladies and gentlemen. Welcome to Acxiom's Second Quarter Fiscal Year 2013 Earnings Call. [Operator Instructions] This conference is being recorded. I would like to introduce your host for today's conference, Jay McCrary, Treasurer. Mr. McCrary, you may begin.

Thanks, operator. Good afternoon, and welcome. Thank you for joining us to discuss our fiscal 2013 second quarter results. With me today are Scott Howe, our CEO; Warren Jenson, our CFO; and Art Kellam, Corporate Controller. Today's press release and this call may contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. For a detailed description of these risks, please read the Risk Factors section of our public filings and the press release. Acxiom undertakes no obligation to release publicly any revisions to any of our forward-looking statements. A copy of our press release and financial schedules, including any reconciliation of non-GAAP financial measures, is available at acxiom.com. Also during the call today, we will be referring to the slide deck posted on our website. A link is also included in today's press release. At this time, I'll turn the call over to Scott Howe.

Thanks, Jay. Good afternoon, and welcome to everyone. Today, I would like to take a look at the first half of our fiscal year and share with you our assessment as to what we have accomplished and where we still have work to do. Next I will talk about our priorities for the second half of FY 2013 and how we are working to help ensure that we meet our long-term objectives in both fiscal 2014 and beyond. As we started this fiscal year, we laid out 4 strategic priorities: first, running a better business by strengthening our core foundations and tightening our execution; second, delighting our customers by maniacally focusing on the needs of our clients; third, driving our long-term margins and returns on capital by profitably operating against every product, client and geography in our portfolio; and fourth, innovating and excelling through thought leadership by developing a world-class marketing and data services products. Our first priority of running a better business continues to progress. In the first half, we put into place a world-class leadership team, improved our associate satisfaction and developed a clear, long-term strategy. We now have much better insight into our business and are starting to get a clear view as to things we do today to deliver for tomorrow. We are a more transparent company and have made significant progress towards creating operating independence in our segments. Specifically, we have embarked on several key initiatives regarding our internal management reporting, measurement packages and benchmarking. These combined efforts are strengthening our core foundation and driving performance. Warren will update us later on several of these efforts. Our second priority is delighting our customers. To start, I would like to point out a great example of focusing on our clients' needs and delivering results. Recently, 2…

Terrific. And thanks, Scott. Good afternoon, everyone. Before jumping into the quarter, I would like to give you a quick update on the initiatives that we've talked about in our last couple of calls. Specifically, we have been focused on improving our ongoing management reporting, building a target P&L with all costs aligned to benchmarkable activities and, finally, creating operational independence for each of our business units. A quick update on each. First, managerial reporting is an ongoing process which requires continuous improvement. I found that what works, whether the -- what looks like a breakthrough today typically becomes table stakes tomorrow. We have now built a regular reporting package by business unit that clearly highlights the important historical and forward-looking trends which have and will impact our business. Scott, Nada and I review this information every month with our account teams. Over the next several months, we are rolling out improved client-level profitability reporting, which will also be a helpful tool for our account teams as they manage our engagements. Next, our target P&L. As mentioned when we last spoke, this has been quite a project. We have basically gone person by person to align specific job codes and related costs with very specific benchmarkable activities. As part of this effort, our HR team has completely retooled our job coding and titling structure using industry standards and best practices. This is a big win for our employees too as it puts us in a much stronger position to help with career planning, advancement and appropriate compensation. Today, we have all the costs mapped to activities, and the job coding work is in its final phase. While we are not prepared today to discuss specifics, our benchmarking has also been completed. We have looked at internal comparisons, competitor ratios, industry…

[Operator Instructions] and it comes from Carter Malloy with Stephens.

First off, maybe on the ITO business. Is -- where we sit today in terms of profitability and revenues, I think, is much better than any of us would have expected just 3 or 6 months ago. Is this something that's sustainable top and bottom in you guys' mind? Or should this slide a little further, going on into next year.

Carter, I'll comment on the bottom line. I think we've been pretty consistent in the guidance we've given overall as we're maintaining for the year the guidance that we've previously given. Looking at sort of the margin profile of the second quarter, I would expect that margin profile throughout the remainder of this part of the year. Looking at how the business is being operated, I think we're in a great operating rhythm, and we would expect there are always going to be ups and downs but for this great performance from this team to continue.

Okay. And then in terms of the marketing services business you guys referred to -- the pipeline, can you talk a little bit maybe around new logo wins and any traction you're seeing there, what's it going to take to hit a inflection point on the top line?

Yes, sure. Happy to talk about where we are when it comes to revenue. And just taking a step back, I always talk about 3 things, Carter, and so I'll just repeat them here. We look at our top line as a function of 3 activities, and the first is, above all, we have to protect our base. And on this, I feel like we're doing great. So last call, I talked about a 10-point improvement in our client satisfaction ratings, close to 100% renewals, strong case studies and accolades, love aligning ourselves with United and Macy's and other great brands. Second piece of this is, with those companies, we got to grow our existing client base. And again we're very pleased with how we're doing. Warren cited 17 of 20. Had growth of our tops, top 20 double-digit growth year-on-year. And I think globally, 19 of our top 25 clients across businesses showed growth year-on-year. On the new logo wins, I would say we just looked at these numbers yesterday. We had our monthly business review. But I want to say our pipeline growth from Q1 is about up 7% since the start of this year. And something that's not seen in just the core growth number is, anecdotally, I believe that the quality of our pipeline has improved because we've been very aggressive in removing things that have been in there too long and may have grown stale, so I like how we're shaping up on that. The one caution I'd give everyone is, over the long-term, we've always said that we thank this business is capable of double-digit top line growth, but for purposes of your model, I'd really encourage you to be conservative going into next year.

Oh sure, I think we will. And then on the other services business, what's -- what drove the step-down there? And again, understanding the overall top line, this is a pretty small piece. Is that something that will persist or something that should improve?

I'll -- let me answer the first part first, Carter. I'd expect the second part of the year to look a lot like the first part of the year, and there are really 2 things going on there. The first is declines in the email business and then the second is declines in our risk business, which obviously we have the partnership with LexisNexis and that's winding -- just our revenue stream is winding down over the course of the coming quarters. I think -- on the positive side, and really, I think it was a great move on the part of the team to put this in its own segment because it's really caused us to focus our attention on doing things to help improve our email business. So while there are declines year-over-year, I also think steps are being made going forward to not only stabilize but also to improve that business.

Your next question comes from Dan Salmon with BMO Capital Markets.

I -- just one question for Scott and one for Warren. First, just -- if you could just tell us a little bit more about the revenue mix in marketing and data services. And what I mean by that is a little -- are you seeing your business start to shift much more to your analytics and EDMP product solutions relative to legacy business and direct mail? And then second, for Warren, the stock's been fairly strong lately. I just wanted to hear a little bit more on your outlook for share buyback.

I'll start with the first. And I'll tell you, we're right in the process -- I talked about our monthly business review yesterday. Next week, we're meeting with our board as part of our long-range planning effort where we relook at our kind of 3-year forecast and then also revisit our strategy. And one of the things that we talked about there, Dan, is we would like to start to lay out, both internally and -- I don't know how much detail we'll go into -- publicly, is break down our marketing and data services revenue into greater specificity. And we think that underneath the surface there are really several pieces. So the first is what I would call our enterprise platform revenue, our license revenue, and we think about that both in terms of kind of custom one-off database builds and then also increasingly multi-tenant SaaS-driven applications. And what we'd like to see over time is that we transition more from -- if it's a larger-percentage custom today, that we flip that and move to a greater percentage of standard enterprise software. And with that will come, obviously, an improvement in margins as we amortize our development costs over a greater pool of clients. The second element of our business is what we really -- we think of as kind of data-driven products. And so whether that's third-party data model sales or what we're increasingly calling our data enablement channel where we're producing data that other people build into their products or channel partners build into their products, we believe that, that's an area of future growth for us. And then the third piece of it is our billable kind of labor whether it's analytics, consulting or just billable services. We think that, we expect, will grow a little bit slower. We'd like it to grow slower than the first 2 certainly, given our investments in technology both in data products and standardization. Beyond that, though, I can tell you that I don't think we're ready to release that kind of detail as part of our quarterly reporting yet, but as we refine this internally, we'll probably start to talk about it a little bit more vocally on these calls.

And then, Dan, I'll jump in on the second part. I think the overarching headline is -- as a team and from the board perspective is we believe in the mission which has been laid out and the sort of opportunity that we have in the go-forward world to drive significant levels of value. So with that as sort of a backdrop or a context, we're committed to building a great long-term business. We want to do so having the strategic flexibility to do acquisitions and partnerships. And at the same time, we want to provide -- for an adequate level, we want to provide returns to our shareholders and return capital to them. As you know, we're on the third leg of a share repurchase program. Today, we have $150 million authorization. We have $35 (sic) [ $35 million ] remaining on that authorization. We are committed to that program. And similarly, at the right time we're committed to going back to our board to discuss our next steps.

Next question comes from Dan Leben with Robert W. Baird.

Just to follow up on that great data point about the top 20 customers growing double digits. Help us understand what's going on below the top 20 that's creating a drag. Is it simply healthcare pharma? Or is this part of the process of optimizing profitability?

All right, Dan, I'll -- this is Warren. I'll jump in here for a minute, and Scott may want to give a little bit of color. The single biggest driver by far was healthcare pharma. There were some cats and dogs around 2 or 3 other industries, but the biggest single driver was a reduction in healthcare pharma.

Okay. So are you -- one more thing about overall client count. Are you either firing or losing some customers below that, that are creating a drag as well? Or is it simply just that one vertical?

I mean, I could never say simply a single vertical because there always, within a client base this size, is going to be some ups and downs. I would figure that the top 20 customers are roughly 55%, 60% of our revenue. And then there are going to be some ups and downs from there and all with some give-ins and give-outs. So figure top 20, about 55%, 60% of our revenue.

Okay, great. And as we look forward to the enterprise data platform rolling out, how should we think about revenue contributions from this? Is this -- are these going to be kind of chunky, lumpy, more license-type sales? Or is this going to be more of a SaaS model ratable recognition to where we'll see a lot more momentum in terms of client wins than we'll see in terms of near-term revenue impact?

Well, I think, in terms of how the revenue -- what's the form of it, the answer is yes, so both because on the one hand, we are building SaaS applications which would have more of an ongoing fee, but on the other hand we're also building an increasing array of data products that will probably be more volume-driven, more variable in nature and, in many respects, linked to media and CPMs. That said, I mean, I think your real question is, "When are you going to start to see those?" And from a modeling perspective, I think we'll start to see that take shape in 2014. And I'd start modeling from there and build off a lower base in 2014. It will definitely be a crawl, walk, run in revenue ramp.

Great. And are there any kind of targets you have set out internally that you're thinking about in terms of mix of customers or mix of revenue that you want to get on the platform kind of first step, second step? Help us understand how that process ramps.

Yes, it's probably not anywhere ready to share both on this call and with our competitors.

And the last question comes from Todd Van Fleet with First Analysis.

Wanted to ask you about healthcare because it seems like that vertical's been waning performance-wise for some time. Is that just not coming back? Is it just a lack of new product in that industry? Do you feel like you have a handle on what's -- what the issue is in that vertical and maybe give us a sense as to whether or not -- or just what your expectations are for that vertical?

Yes, hard to say. And I think we probably -- knock on wood here -- hit our balance point on that but I'd say that's largely because I think a lot of the things that were happening in the industry are starting to turn. And you heard me talk about this last quarter that, in healthcare and pharma, there was about a year of paralysis as folks were waiting to see what would happen with legislation. Now I think there's more of an impetus to action. And so in that space, I can say anecdotally that the number of conversations that we're having has increased. Whether that translates into business going forward is going to be predicated on our ability to close those conversations into book revenue. As such, I don't think there's anything systematic that's ongoing there.

No heightened sensitivity to privacy issues, in your view, for participants in that industry?

Not that we've seen, not really across our client base. And then, it's something we take very seriously and so for any of our clients, whoever do raise questions about privacy, then we have a whole group that we can parachute in and help clients think through those issues and make sure that everything they're doing is in a very secure and compliant methodology.

Okay. I wanted to ask, the work that you guys are doing in the predictive models, I think you said you had about 1,500 or so you're going to release to the market at some point. I'm just -- I'm really intrigued by the idea of Acxiom adding value through the modeling and the predictive analytics. And I'm just -- I just don't know if I have a clear idea as to how you go about monetizing it so I'm hoping that maybe you could explain how your existing customer base will start using -- how you expect them to start using those new tools. Is it -- and how are you going to get compensated for the access to that library, if you will? Or do you just kind of open up the library on a client-by-client base? Or do you -- basis -- or do you rely on -- are your clients looking for Acxiom personnel to kind of bring the right tools to them? How is that...

I think we want to do the second, whether clients are relying on us for that or not. We believe that we've kind of reached an inflection point whereas, in the last 5 years, people have been talking about data, data, data. Now they're starting to say, "Okay. I got lots of data, so what? What does it mean?" And propensity models and predictive models, they help our clients figure out, "What do you do with the data?" So an example would be, for an automotive vertical, helping them create a model to figure out what users are most likely to buy red convertibles, right? And so if you deploy that for a model, it makes their messaging go much further and it improves the ROI. And so that's the value that they see. And we'll either charge by the consulting fee or on a per-use basis. And in an ideal world, what we'd like to do is develop knowledge around what types of predictive models are most useful in particular situations. And so when you can do that, then the intellectual capital starts to look a lot like your product investment, meaning that you can develop something and amortize it across a greater pool of clients. So instead of having a custom model for everyone, you start out with some standard knowledge and then customize it for a specific situation.

Right. And Scott, I can't remember if we talked about this at one point, but is the -- the predictive models, it's not just -- is it just who is likely to purchase what and when? Or is it going to get into -- a predictive model is going to get into actually how people are buying? That is, online, who buys online versus offline and how is that...

Oh, yes, absolutely. And then the other piece, I would say, is it's about the messaging that you deliver. I mean, too often, marketers focus in on what customers do they want to reach. And then they reach those customers and deliver a bad message. So this is all about relevance: the relevance of the customer, the relevance of the context and in which you reach that customer and the relevance of the message that, that customer receives.

And for our last question, a follow-up from Carter Malloy with Stephens.

Real quickly, sort of the international component of the business. What does it take for that to stop bleeding both top and bottom line? And how long until we get there?

I'll give that...

Carter, let me kick it off, and I'll throw it back to Scott on the top line. On the bottom line, we are focused on that business being profitable by year end. And we're not going to be a lot profitable, but the clear mission or objective that our international team very clearly has is to be profitable by the end of this year. I think we've made it quite clear that we believe that it is really important to grow from a base of profitability internationally and then go from there. A couple of things that we're doing on a product end, and then I'll throw it to Scott, but one is I think we have a heightened level of coordination today that is different at Acxiom where we are selling to multinational corporations in a different way than we ever have before, which I think is very much a positive. I think we have a heightened level of operational coordination between our delivery and other organizations and our associates that are not in the U.S. And then the third thing is really how Phil is approaching the globalization of our product. I know personally because Phil and I have -- his office happens to be next to mine. He's already visited several of our international locations and is working with our associates abroad to figure out how to better globalize our product such that, that product can be sold on a global basis, as opposed to these guys left to fend for themselves.

I think -- well said, man. The year-on-year comparisons there, Carter, from a top line perspective obviously aren't favorable, but you'll remember, in past calls I've said, as we were doing -- taking some hard action in our international portfolio, I said I would always trade $1 of revenue for $1 of profitability. So some of this represents weaning ourselves off of unprofitable products and clients. And then just to add to what Warren is saying, I will tell you, in the last week, as an example, 2 of our best U.S. salespeople are -- find themselves in international markets. So we have someone in financial services right now who we've redeployed in Australia. Australia has a very, very strong financial services and banking market and we want to make sure that the expertise that we've built in the U.S. can be applied to the Australian market also. Likewise, our vertical lead in financial services is in Europe right now and he's spending the next week to 10 days over there and he's doing the same thing, calling on many of the European financial services players. So it's that kind of stuff that simply didn't happen at Acxiom 1 year or 2 ago. And we're starting to cross-fertilize clients and expertise across the globe with increased regularity.

And then on the healthcare pharma vertical, did you or can you call out how big that is as a percent of revenue? And is that all just a function of the patents rolling off in terms of structural versus just temporary issues?

On the percentage of revenue, I wouldn't put it in -- it's one of our top categories. I won't be quite so specific in terms of overall quantification. I would say, this quarter, though, just to give you an order of magnitude, it's low single digits as a percentage of the total so it's just not material for this year. The decline from the prior year really had nothing to do with the roll-off of any patents, okay? It had more to do with a specific customer who was bought out by a PE firm and moved things internally, as opposed to anything else.

Let me just wrap up, then, by thanking everyone for your time today. We appreciate all that you do for the company and your interest, and we look forward to talking further. Thank you very much.

Ladies and gentlemen, thank you for your participation. This concludes the event, and you may now disconnect.