Good day ladies and gentlemen. Welcome to the Acxiom third quarter fiscal year 2010 earnings conference call. As a reminder today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the conference over to Chief Operating Officer, Mr. John Adams. Please go ahead, sir.
Thank you, good morning and welcome. Thank you for joining us to discuss our fiscal 2010 third quarter results. With me today are John Meyer, our CEO and President and Chris Wolf, our CFO. Today's press release and this call may contain forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.
For a detailed description of these risks, please read the risk factor 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. The copy of our press release and financial schedules including any reconciliation of non-GAAP financial measures is available at acxiom.com. At this time I'd like to turn the call over to John Meyer.
Great, thank you, John and thank you for joining us in today's call. So for consistency in these discussions, I'll begin with a few remarks about our results, a look back if you will and then look forward to our four primary focus areas for improving our business.
As a reminder, you'll recall that those are insight, integration, international and incubator. So let’s get started with a recap of our third quarter numbers. As you can tell from our earnings release Q3 marked our second straight quarter of sequential improvement in revenue, up nearly 5% over Q2, which was 6% higher than Q1. These numbers reflect the impact of improving economy and are consistent with our historical seasonality of our results.
Our Q3 improvement came both from previously reported contracts kicking in and the good mix of new business that we generated this quarter. We saw evidence of stabilizing client spendings both in ad hoc work and strategic multi-channel programs. As of last quarter each of our industry units, minus retail this quarter which had a small decline, increased their revenue sequentially.
I'll give you a few examples. In financial services, we saw our best sales quarter this year and the average size of the deals being up substantially. In our manufacturing and distribution business, revenue grew 5% year-over-year and margins improved considerably. In retail, our pipeline was the strongest since been all year and we closed a few deals with a home improvement chain and a video retailer.
In travel, we had a significant extension with Marriott Vacation Club International and in media we signed two new solution lines with Time Inc. The quarter continues to highlight our focus on operational leverage, resulting in solid earnings performance with diluted earnings per share of $0.18, up $0.12 in Q2.
Additionally we continued to enjoy our strong free cash flow to equity of $49 million. And that’s a high level view of where we have been. Now let's look at the focus areas driving our future, starting with the varied insights. We're seeing success in helping executives understand the true foundation of multi-channel marketing lies in the deep insight of the consumer. How they behave, the attitudes they hold and how they prefer to be reached.
The results of our clients are seen, are clear and measurable as we learned in a recent case study with another worldwide hotel chain. This company engaged us for a customer-targeted solution with three primary objectives.
One, to gain more repeat clients. Two, to improve customer communications and engagement through e-mail. And three, to better understand the reason behind the travel orders, not just the location of what the traveler was interested in. Through our multi-channel solution, we were able to create more meaningful interactions that led to significant benefits. For one, a 39% improvement in a click-to-open rates. For point two, we doubled the number of bookings resulting directly from this varied targeted e-mail campaign and three, additional customer insights from the dialogue that could used in future campaigns.
Insights like these are a reflection of our investments we’ve continued to make through innovative solutions throughout this entire recession. These innovations are paying off in numerous ways particularly in the move towards leverage online applications across traditional offline direct marketing channels. Let me just consider a few of the developments we've seen in this e-mail channel alone. We were named the leader in the prestigious Forester report based on our growing dominance in email marketing space.
We had our largest month ever, in opt-in consumer e-mails with 1.2 billion e-mails served on behalf of our clients in one month. We introduced an e-mail/social media capability that lets consumer quickly repost marked messages they like for their friends and family to see on social sites. And we're seeing a positive initial result in what we believe will be a game-changing ability to recognize consumers, whether it’s by e-mail, mobile or home phone, not just a physical address.
And already, our AbiliTec digital pilot clients have identified more than 25 million previously anonymous customers and prospects. That's a huge value for them. Additionally our sales and account management teams are reporting progress in other web-based products and services. For example, we had our largest quarter ever in signing up for our Relevance-X online display solution.
Just as important we had nine renewal for Relevance-X reflecting the value that our clients received from being able to serve ad on a site that was geared towards the interest of that user specifically. The more insights an organization has on its customers and prospects, the more effective it'll be executing across all of these channels in a coordinated fashion.
Now let's switch gears and review progress in our second focus area, which is integration. Integration's about two things. One, how we build our solutions so we can easily integrate into a client's infrastructure and two, how we align our resources internally to support those client's objectives For today, we'll focus on the impact of integrating our resources and skills across delivery into functional teams, aligned to key client activity.
Through the expansion of our transformation program, we are now driving 55% of our customer delivery through our standard processes. As a result of this, and other ongoing operational efficiencies, we're seeing amid the pricing pressure, our margins are continuing to improve. Also, with the new business coming online from the several of our industries, we're now able to eliminate an unpaid vacation program in our delivery area as we take on this new business.
Now I'd like to make a few remarks on our third focus area which is international. This week I returned from a trip to the Middle East where a small marketing company that we had just acquired was honored as one of the fastest growing firms in Saudi Arabia. While I was there, I made numerous client visits with local subsidiaries of many of our existing Fortune 500 clients.
These executives were very excited to have Acxiom capability there to support them as they continue to grow in the Middle East and adjacent markets. We've also had the opportunity with regional-based companies, I'm firmly convinced the Acxiom story will play very well in long-term in this and other emerging markets. In Europe, I'm also pleased by the early progress our new leadership team is making towards revitalizing our business there.
Specifically in the UK, we had sizeable wins in marketing services area and a robust pipeline that included the largest opportunity we ever had there. In Acxiom France, well it's a small part of the overall operations, it has its best revenue quarter ever. These are encouraging signs for us, after a lengthy period of anemic results.
Our fourth and final area of focus is incubator, which you might recall is our emphasis in identifying opportunities to create the new $100 million business. Identity management and authentication continues to be a promising area for us and in Q3 we made our first foray into a direct-to-the-consumer market with a consumer-initiated background checks.
By using our existing assets from our information security services business, we now offer a product called I-Check that let's individuals initiate third-party background screen to share with potential employers and volunteer agencies. All they need to do now is go to www.acxiomicheck.com and the application will take them through a serious of responses and pay a small fee upon checking from out that site.
The benefits of this product are numerous, both for the individual that is requesting the background screen and for the recipient employer organization. An example, an extremely diligent parent may want to check the credentials and/or criminal background of a potential nanny or home health nurse. Not only does I-Check creates that peace of mind for the consumer, but for small organizations it gives them the ability to lower costs by considering those candidates who have already been prescreened only.
In closing, I hope I have communicated a balanced view of our business. Our clients continue to look at us for a lower cost, higher ROI solutions to improve their market productivity. We hear this is playing to our strength in providing targeting, measurable marketing across all channels. We continue to develop stronger and deeper relationships through an improved account management and lower cost, higher leverage delivery organization.
We are hearing that marketing departments are seeing the need to reinvest after a period of cutbacks when the market was seen as a discretionary expense rather than a necessary investment. Our strength is our ability to provide all the foundational components of an effective multi-channel marketing campaign, so that acquisition and retention-minded companies have the upper hand in engaging the consumer.
So in my view, there's much reason for cautious optimism going forward. With that, I'll turn it over to Chris for our financial details before coming back with a few summary points. Chris?
Great, thanks John. I'll be reviewing selected financial highlights for the quarter. I direct you to our website for the supporting financial schedules to assist you with your analysis.
Let me begin with the consolidated figures of the income statement. For the three months ended December 31, 2009, total revenue was $283.8 million, compared to $301 million excluding the $20.1 million revenue from a pass-through data contract in the same period last year. This represents a decrease of $17.2 million or 5.7%.
Normalizing for exchange rates, the decrease was 6.7%. As we’ve discussed with you previously, the company now recognizes revenue on a net basis from this data contract. Total operating expenses for the current quarter, decreased 4.7% to $253.9 million compared to $266.4 million excluding expenses related to the pass-through contract and excluding unusual items for the prior year three-month period.
Operating income was $29.9 million this quarter compared to a loss of $8.6 million a year ago. Excluding unusual items, the prior year operating income was $34.6 million. Net income was $14.3 million compared to a loss of $11.4 million last year. Excluding unusual items, the prior year net income was $16.2 million.
Fully diluted earnings per share was $0.18, down from $0.21 before the affect of unusual items in the third quarter last year. GAAP diluted loss per share in the prior year was $0.15. I'd also like to comment on our third quarter results compared to our second quarter. Total revenue was up by $12.7 million or 4.7% and operating income was up by $8.6 million or 40%.
Operating margin improved to 10.5% in the third quarter, from 7.8% in the second. As John mentioned, this represents the second consecutive quarter of sequential improvement and is representative of our historical seasonal pattern. Turning to revenue, services revenue for the quarter ended 12/31 was $218.3 million, this represents a $12.7 million decrease or 5.5% compared to the prior year period.
Services revenue was down, primarily in multi-channel marketing services line of business, specifically in our traditional database marketing services with some offsetting increases in consulting and information management. The decline in multi-channel marketing services was driven largely by the financial services vertical. Over the last year, revenue declines have occurred in financial services due to consumer consolidation, contract renegotiations for reduced scope and volume reductions.
The consulting line of business was up by over 15% with increases across most industry verticals while the information management line of business was up by over 4% over the last year driven by the recent signing of the D&B contract. Products revenue for the quarter ended 12/31 was $65.5 million which was down $4.4 million or 6.3% excluding the pass-through data contract when compared to the same period last year.
The US and international operations were each down $2.2 million. The US products revenue reductions were most notable in the financial services and employment screening business. The employment screening business is still challenged by the lack of hiring in the US. The decrease in international operations is being driven mostly by decline in the UK data business.
Turning to operating costs and expenses for the quarter. At a $163.2 million cost of services decreased by $10.2 million or 5.9% compared to the same quarter a year ago. Expenses had been reduced significantly over the past twelve months as revenues have declined. As John mentioned, we continue to drive efficiency improvements in the shared IT and delivery function and margin improvement has been generated in line with business with quarter-over-quarter revenue increases.
As a result gross margin for services revenue increased from 24.9% to 25.3%. Cost of products at $46.7 million represents a decrease of $23.8 million compared to the same quarter a year ago. $20.1 million of the decrease was due to the pass-through data contract mentioned previously. Excluding the pass-through data, product costs actually decreased by 7.3% and margins on non pass-through products increased to 28.6% from 27.9% a year ago.
Due to the relatively fixed nature of our product costs, we continue to see margins expand as sequential revenue increases. SG&A expense was $43.5 million for the quarter ended 12/31, up 2.2% compared to $42.6 million in the prior-year period. The current quarter was negatively impacted by higher than expected health insurance claims in the company's self-insured plan.
Health insurance costs were $3.3 million greater than the same quarter last year. Also, sales costs were up compared to the same period last year, by approximately $1 million, mostly due to increased sales commission. These expense increases have been offset by expense reductions related to the cost savings initiated in other SG&A functions during the previous and current year.
Interest expense for the quarter was $5.7 million compared to $8.1 million a year ago. The decrease in interest expenses due primarily to a lower interest rate and average balance on the term loan. The rate is approximately a 130 basis points lower and the average balance is approximately $42 million lower.
Interest on other debt, such as capital leases was also lower. The current quarter tax rate was approximately 42%. The increased tax rate is impacted by losses in foreign jurisdictions, companies not recording tax benefits of these losses due to the uncertainty of future benefits.
As John mentioned previously, during the quarter ended 12/31, the company completed the acquisition of a 51% interest in assets of DMS and [adding] with operations in Saudi Arabia and the UAE. Since Acxiom has voting control of the entity, we consolidate a 100% of the balance sheet and the income statement. The 49% that is not Acxiom and al this is reflected as non-controlling interest at the bottom of the income statement and within the equity section of the balance sheet. All references to earnings per share in my discussion today relates to earnings per share attributable to Acxiom shareholders.
Let's turn to the balance sheet and I'll discuss a few highlights of the current quarter as compared to March 31. As of December 31, the company had cash of $200.6 million, up from $177.2 million in March. Accounts receivable as of 12/31 were $180.5 million down from $184.8 million in March 2009. We remain focused on cash collection and our liquidity position.
As such, day sales outstanding was 59 days at December 31, compared to 56 days at March 31 and 62 days at September 30. Our current ratio as of December 31 is 2.0 compared to 1.8 at March 31. Total debt as of December 31 was $525.3 million, a decrease of $52.9 million since March 31.
Total debt, as of December 31, consisted of $448.5 million in the term loan. $43 million in capital leases, $9.8 million in software licenses and $24 million in other debt. During the quarter, we did prepay $7.5 million on the term loan. In addition to the outstanding debt, we have a $200 million undrawn line of credit and we are currently in compliance with all our debt covenants under our credit facility.
Also during the quarter ended 12/31, the company amended its credit facility to the extent of $375 million in the term loans to 2015 and to extend a $120 million of the revolving credit agreement to 2014. The remaining $75 million of original term loan and $80 million of the revolving credit facility remain on their original maturity schedules.
Turning to cash flow. As I mentioned previously as of December 31, the company had cash of $200.6 million, up from a $138.1 million a year-ago. For the current quarter ended 12/31 free cash flow to equity was $49 million, compared to $46.8 million in the same quarter last year.
Operating cash flow was down slightly due mostly to an increase in deferred costs of $11.1 million related primarily to the D&B contract and a decrease in depreciation of $6.5 million. Current quarter cash flow was positively impacted by lower total capital expenditures, including capitalized software and data acquisition costs of $6.3 million.
As I mentioned before, we used some of the free cash flow to prepay $7.5 million of the term loan debt in the quarter. Total capital expenditures for the acquisition of property equipment were $17.3 million in the quarter. Included in this amount was $7.9 million of finance purchases. Year-to-date, total capital spending was $86.5 million compared to $67.6 million in the same period last year.
This concludes our prepared comments from the financial statements. Operator, we’re prepared to begin the question-and-answer session of the call.
(Operator Instructions). We'll take our first question from Todd Van Fleet with First Analysis.
Todd Van Fleet - First Analysis
You gave commentary on SG&A, what drove the sequential increase, I am just wondering, can you briefly go over that again. You said healthcare costs and was there incentive comp that was driving that?
Todd, to answer that question it was a healthcare accrual just to give you a little color. We did have an increase on clients which we considered a bit unusual that came through in the third quarter, the current fourth calendar quarter. As far as the incentive compensation, it was primarily sales commission. We've alluded if we talk a little bit about that. Our pipeline has started to look a little bit better and so we did have increased sales commissions during the quarter.
It's a good thing that we sold a lot of new business.
Todd Van Fleet - First Analysis
Just in terms of that commission plan, is it quarterly? Is it semiannually, is it annually? The December quarter payout, I'm trying to understand, if you continue this trajectory should we expect to see the same SG&A rise here to comparable levels?
No, first with the healthcare there was a bit of a catch-up on the accrual. So that trues up the accrual.
Todd Van Fleet - First Analysis
How much was that?
That's really an annual number to catch things up. So you'll be able to spread it out for your models. And then with the commission, it's all deal based. So when big deals get sold, that's when we pay the commission. So those things, when they happen they get paid, if they don't happen they don't get paid.
Todd Van Fleet - First Analysis
Okay, so you'll land a big deal, so just understanding this structurally. So you'll sign a deal, you'll pay the commission, so that's an accrual and cash cost. I imagine if there's modification afterwards there is crawl back, but if the accrual and cash cost happens at the same time?
That's right, if we do a multi-year deal, there's some hold back on that, just to give a little color on that, but to add to John's point on the SG&A, we're still examining the healthcare costs, so we're trying, to John's point, if that were to normalize, that could be an additional $1 million for the quarter. We've been running at $38 million to $40 million run rate in SG&A.
If this does come to pass and it's sustainable or it becomes sustainable, we'd probably end up towards the high end of that range.
Todd Van Fleet - First Analysis
And just thinking about the seasonality, again, here, and there's moving parts and pieces, you're making improvements in the business, you're increasing the backlog, you're realizing expense savings, working against going into the March quarter here, which is a seasonally softer quarter, how should we think about just kind of general direction on the margin here which is going to win the day in the March quarter?
Is it the seasonality and the pressure from a seasonality point of view? Is that going to more than offset the improvements that have been made?
It's the March quarter and it's hard to predict, I think we've proven that we manage our cost structure based on where the revenue flows are and I think you can go back a number of years and see what the trends are and the seasonality and between the third and the fourth quarter and then traditionally the first half of our fiscal year, so I think you should look at, historically what has happened in that period and bring it forward.
Our next question is from Carter Malloy with Stephens Incorporated.
Carter Malloy - Stephens Inc
Great quarter. Looking at uh, the card piece of the business, can you tell us, is that still probably 17, 18% of revenues? Your card mailings, specifically card direct mail?
Carter, I wasn’t sure if I heard that. Could you repeat the question.
Carter Malloy - Stephens Inc
Okay. So, looking at the credit card piece of the business, is that piece of your business still 17%, 18%?
Yes, that’s still fairly accurate.
Carter Malloy - Stephens Inc
Have you seen a meaningful lift in your ITA business during the third quarter?
Oh, okay. Prospecting an [invitation] to apply. More anecdotally than we have seen the financial industry business as an entire industry improve sequentially as we said versus last quarter and last quarter improved. So we're seeing it come back. The world hasn't gone back to '97 because there's a lot less credit card companies around, WaMu being one of them, HSBC being gone. So less customers but they are being more aggressive on the ITA part.
And if I could add color to that, I guess to John's point Carter, I think it does apply to individual institutions. Some institutions are more aggressive and I think a lot of us know who they are and so you're seeing some institutions being more aggressive on the spend but it is not across the board.
Carter Malloy - Stephens Inc
Okay. And do you think that trend, at least the stabilization or slight improvement there, do you think that will continue post February 22'd or do you think we're going to slow down here.?
It's funny. We've had that question a couple times on the credit card act and I tell you that the credit card act is going to put the, especially with the fine requirements, is going to put the onus on the credit card companies to know much more specifically who they're offering credit cards to and that consumer knowledge is one of the strengths that Acxiom brings to bear. So we think its going to play pretty well into our hands as opposed to even put it at risk. So, for example, with the college students and their requirement on that, our data and our consumer recognition, the ability to know who they are and where they are, is an important part of what we bring to them.
Carter Malloy - Stephens Inc
Okay, and then looking out here, I know you guys are very reluctant to give guidance but I was thinking about your answer to Todd's question a moment ago on historicals which are usually pretty tough for me to filter through because of a lot of the noise in the model in previous years. And just wondering if general seasonality, fiscal fourth quarter, if that's still a good data-buying quarter and so if we could expect maybe revenues to be flat here sequentially.
As we said last quarter, the second half of the year was going to be substantially better than the first half and Q3 is representative of that and I think you can expect more of the same.
Our final question comes from Dan Leben with Robert W. Baird.
Dan Leben - Robert W. Baird
You talked a little about sensing some stabilization in the market. Can you just talk about what you're hearing anecdotally in terms of our customers kind of saying with this kind of level we hit in the third quarter, this is third calendar quarter, kind of a level we need to have going forward or are you hearing more people talking about hey, we cut too far in 2009 and need to have a little bit of a resumption to a more normalized market in 2010.
Let me try that. It really is somewhat anecdotal and individual clients going different ways, but there is no doubt that a lot of clients pulled back quite significantly during the downturn and the realization that that basically can't go on forever. So there's a combination of two things working. There's a little bit of an, sort of optimism in the budget, an increased spend within those budgets. But what they're really looking for is better return from the spend that they're getting.
There is a much greater focus on the return they're getting for that investment, rather than the investment in marketing just going up somewhat arbitrarily. So I think as John said in his comments, it probably plays to a sweet spot in that we can really target, specifically and measure the returns on a lot of the campaigns that we run. So there's a little bit of freedom in spending, the budgets beginning to ease a little bit. We're seeing that with some of the new business sold that hasn't yet flowed into the revenue line. But there is still considerable pressure from each company to measure that return that they're getting from that investment.
And we think measurable marketing fits right into our sweet spot, Dan. So that's what we do. People aren't buying as many of the $100 million branding campaigns but they're turning to us and saying 'can you tell me what I'm going to get for it' and that's what Acxiom does.
Dan Leben - Robert W. Baird
Agreed. Now, just to follow-up on Carter's question a little bit, when you look at that card business, obviously there are some players that have gone away. If you look at kind of a same client sales or revenues-type basis, are you seeing that business getting to the point where you're starting to get to, their year-over-year increases are kind of backed up flat or how should I think about that in terms of the individual clients that are still around and surviving?
Well, I think Chris probably alluded to it just now. It really is client by client. There are one or two that are coming back with higher levels of spending, not back really to the more booming period previously but they're coming back and they're getting more focused. There are others still holding back in a little bit of sort wait and see. So it literally is client by client. It would be unfair to say that there is a trend.
Dan Leben - Robert W. Baird
And, in the commentary you mentioned that 55% of your volumes are now going through the standard Acxiom platform. Could you talk a little bit about how we should think about, how that number is going to move going forward and also the cost savings that are related to standardization of platforms?
Well, I mean, we'll continue to approve on that standardization. I think you're seeing it reflect in the increased margins. So, you're seeing it flow through and it's to the benefit. I don't think you'll ever see that and we don't aspire for that to be 100%. One of the things that our clients value is the customization nature of some of the things we do and for the right clients and for the right price we're willing to keep maintaining that customization because it's very important to the client on this. We have other clients that are price sensitive and are looking for some, are willing to adapt to the way they do things to match our profile and to the extent they do, there's an associated benefit for us and a reduced price to them.
And I think what we shouldn’t lose sight of, we spent a lot of time focusing on the price or cost to us of providing these services. By standardizing a large portion of what we do the quality of those services actually is more predictable and goes up as well. So sort of a double benefit comes through to the client.
Dan Leben - Robert W. Baird
Okay, and then last one from me is just on the retail segment. Obviously you had a couple of nice wins there but that was the one business that lagged in terms of sequential growth. Was there any kind of large one-time items in the third quarter that kind of weren't there in the fourth quarter or is there something else going on in retail that you're not seeing in other verticals?
No, it wasn't nearly anything you could point out. The decline was small. But because it didn't increase, it was the only one that didn’t increase, we had to single it out. So there is nothing significant. You shouldn't read anything into that from our business in the retail segment. It just is what it is.
In fact, what happened at the end of the quarter was we got a couple of very nice wins that obviously flow into the future and despite those two pretty decent wins I think we could have the had the strongest pipeline we've had in a while in the retail space. Yet to be converted of course, but a pretty strong pipeline.
Yeah, I'll add actually a comment that our Q2 was actually a pretty good quarter. So it was a tough comp for retail. Had a very good (inaudible).
Dan Leben - Robert W. Baird
Okay, and then just to clarify on the sales commission's timing, do the sales commissions start getting paid before any revenue is recognized? For example, those large retail deals at the end of the quarter? Did sales commissions hit this quarter in terms of the costs but the revenues are going to start falling going forward or is there more of a timing of recognition around when the revenues start?
It's variable. I guess I would say, traditionally commissions are paid shortly after a contract is signed. If it's a particular contract where we have a large migration period to incorporate them, it might be that the commissions come before the revenue flow does. On the other types of offers, migrations are really short and, and you know, those things, where we would recognize revenue in the same quarter. So, I guess the answer is, it depends.
And, as I said earlier, Dan, if it's a multiyear deal, we do hold back a portion of the commission and actually have a pretty rigorous process internally where we determine when the revenue is going to flow and what some of the contract provisions are and we do adjust the timing and the commissions accordingly.
We do have time for a follow-up question from Todd Van Fleet with First Analysis.
Todd Van Fleet - First Analysis
I can't let you skate by with a 35-minute call. So I thought I'd sneak in one more here. With respect to international, if I could ask you to comment on a few things and think about it in terms of Europe and Asia and so when you think about the barriers or the hurdles to overcome for Acxiom to accelerate its revenue growth rate internationally and I guess to think about it in three different ways. One is the relationships.
So how, I'm thinking of three different areas, okay; relationships, the customer relationships, the technology, the ability, essentially to kind of add alpha if you will from an information standpoint to your customers stream of thinking and then kind of the macro environment. So when you think about the hurdles that Acxiom has today in making inroads into, be it Europe or Asia or both, what are the primary things that the company is focused on to get that traction?
Is it getting the customer relationship? Maybe that's the number one factor in Asia? Maybe it's getting the technology? Maybe that's a short second in Asia. And then maybe the macro environment in Asia certainly isn't an impediment the way it is perhaps in Europe. But I think if you understand what I'm getting at, I'm trying just to understand how you guys are thinking about the international growth.
Great question. So the macro environment is probably the easiest one to look at first. And I think we all have a view in Europe that they would, a little later in being hit by some of the credit squeeze and they've come back later. For us, the biggest impact has been in the U.K. And remember, a lot of the business that we have in Europe is product-based and most of the service business is in the UK. And that's remained fairly stable. So take that off the table for a moment.
So definitely UK is our biggest market. It has got quite a lot of product business in it and it's been the slowest market to recover of all of European markets. So that, that's the biggest issue from a macro point of view. If you look at Asia-Pac and predominantly China, that actually rebounded a little quicker and probably didn’t get down as far as just about every other economy. So that's remained relatively stable for us in a macro sense.
Then look at the particular aspects that allow it to be successful. Probably it's around a combination of leadership and ability to penetrate large clients. And what we've done, as you know, we've hired a new leadership team in Europe for example. But underneath that, which we don’t really talk about very much, we're hiring leaders of each industry area where we think well be successful in Europe.
So we're working pretty closely with the industry leaders in the US, using their capability, knowledge and so on and that is proving to be the right way to go to penetrate one or two of the large industry groups. So I think we're making inroads in that area. China is obviously a little bit different. Relationships are very important. We have an almost entirely Chinese-legged team there.
The actual federal leader of China is a French guy that has lived in China and speaks the language for a number of years. The entire rest of the team is Chinese. They do have local contacts that work for other large multinational companies very often. So we're making inroads there as well and improving on that slightly less declined economies. We’re going fairly well.
Our customer base is still the Fortune 500 stuff and wherever we establish the initial relationship, we try to follow that relationship to other subsidiaries where they operate. So we deal with [Car Force] or [L'Oreal] that started in China. We've used that as a potential access point and a relationship into France similar with the financial institutions as they are globalized following them in other places, so they're working together. Our groups really across the whole company have substantially improved and we operate and target customers on a global basis, not just a particular ad hoc project by project.
Todd Van Fleet - First Analysis
Great, thanks for that. You didn't really mention anything with respect to technology or a platform, a technology platform that maybe is necessary in one market versus another. So are you content and happy with the technology capabilities that you have; the ability to deliver on a multi-channel basis, be it via mobile or over the net. Do you think you have pretty much all the tools that you need at this point to execute in various markets?
I think the honest answer is no because we still have a predominantly product-based business other than the UK and France is actually getting there as well. The French service business is part of the growth that we talked about a little bit earlier where France had its best quarter ever. So probably France and the UK are ahead in terms of platform and capability and we're looking at the other key markets and what we need to bring there. But the honest answer is no, it's been a product-based business.
And some of it is just in evolution and maturity of those markets. So products like InfoBase and AbiliTec, we roll those out as it makes business sense in those respective regions and where it can actually satisfy what we think the market needs are, on that.
As far as utilizing some of the multi-channel stuff, you can send e-mails, which we do already, for multinationals around the globe from one place. So we service some of our customers in 60 countries, but just send it out of one location, that's the beauty of e-mail on this and so same with mobile and smses. We have that same kind of capability and strength.
So we're, we're feeling pretty good about our technical capabilities. We're constantly looking to for other new technologies or different kinds of analytic processes that we need to capture the expertise on it and we're evaluating those on a day-to-day basis. We do have $200 million. That's one of our uses of capital will be to look at geographic capital areas or technical competencies that we need to gain and use our cash to springboard into that.
That does conclude the question-and-answer session for the call. I'd like to turn it over to Mr. John Meyer for any additional or closing remarks.
Just to summarize, the four key points I want to leave you with.
First we see some loosening of the marketing wallets. The second is we'll benefit by our dual focus on long-term relationships and our focus on value-added solutions and measurable solutions, most importantly. Third, we're gaining leverage from our infrastructure and I have said that a couple times, around our economic leverage and then fourth, during the downturn, we've continued to invest in improving our products and creating some new innovative solutions, we think we can take advantage of going forward.
We expect the momentum to grow in the coming weeks with the introduction of a new marketing message that will emphasize our strengths and play to our position as the industry leader. I look forward to having more to share with you on that on a later date. Thank you for your participation in the call. Talk to you next quarter.
That does conclude today's call. Once again thank you for your participation.
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