Filing summary: Acxiom Corporation FY2015 Form 10-K
Entity and period clarification: The supplied filing is for Acxiom Corporation, not Liveramp Holdings, Inc. It reports the fiscal year ended March 31, 2015; it is not a standalone LiveRamp filing or a filing for calendar 2014 Q4. LiveRamp was acquired by Acxiom during the year.
Business context and reporting period
Acxiom provides data, analytics, marketing services and IT infrastructure management. Its reportable segments were Marketing and Data Services (MDS) and IT Infrastructure Management (ITO). Results include LiveRamp from its July 1, 2014 acquisition date. Acxiom’s U.K. call-center operation, 2Touch, was sold and reported as discontinued operations.
Financial performance and liquidity
| Metric | FY ended March 31, 2015 | FY ended March 31, 2014 |
|---|---|---|
| Revenue | $1,020.1 million | $1,062.3 million |
| Operating income (loss) | $(0.6) million | $50.5 million |
| Net income (loss) from continuing operations | $(9.1) million | $11.0 million |
| Net income (loss) attributable to Acxiom | $(11.0) million | $8.9 million |
| Diluted EPS from continuing operations | $(0.12) | $0.14 |
| Operating cash flow | $104.8 million | $163.2 million |
Revenue declined 4.0%. ITO revenue fell 16.3% to $215.2 million, largely reflecting prior contract losses; MDS revenue was essentially flat at $804.9 million. Total operating margin fell to approximately negative 0.1% from 4.8%. Gross margin decreased to 20.8% from 25.1%.
MDS operating income was $46.7 million, or a 5.8% segment margin, versus $78.5 million and 9.7%. ITO operating income was $18.1 million, or an 8.4% margin, versus $32.8 million and 12.8%. Corporate operating costs and excluded items contributed to the consolidated operating loss.
Cash and cash equivalents were $141.0 million at March 31, 2015, down from $418.6 million; working capital was $166.0 million, down from $416.1 million. Investing activities used $355.2 million, including $265.7 million net cash paid for LiveRamp and $69.0 million in capital expenditures. Total debt and capital leases were $287.4 million, including a $270.0 million term loan; there were no revolving-credit borrowings. Acxiom reported compliance with its debt covenants at year-end.
Annual 10-K results show the following for the quarter ended March 31, 2015: revenue $257.4 million, gross profit $51.2 million, operating loss $4.6 million, net loss $6.0 million and diluted loss per share of $0.08. In the comparable quarter ended March 31, 2014, revenue was $268.6 million, gross profit $69.6 million, operating loss $11.5 million and net loss $29.2 million.
Material changes and unusual items
- Acxiom acquired LiveRamp for approximately $272.7 million of total consideration, including $265.7 million net cash paid. LiveRamp contributed $27.0 million of revenue after acquisition and reported a $16.5 million net loss in that period, including substantial acquired-intangible amortization and share-based compensation.
- Fiscal 2015 operating expenses included $36.5 million of business separation and transformation expenses, $23.8 million of restructuring charges and adjustments, $28.9 million of share-based compensation, and $11.4 million of acquired-intangible amortization. LiveRamp integration also prompted $4.3 million of accelerated software amortization.
- Cash from operations fell by $58.4 million year over year, primarily due to lower earnings, restructuring and transformation costs, and unfavorable working-capital changes. Accounts-receivable days sales outstanding increased to 57 from 54.
- After year-end, Acxiom agreed to sell ITO for $140 million in cash at closing, up to $50 million in contingent payments, and a 5% retained profits interest. Closing was expected in Q2 FY2016, subject to conditions; management expected a gain and planned to use proceeds to reduce debt and support expanded repurchases.
- The repurchase authorization was subsequently increased to $300 million through December 31, 2016; the amended credit agreement, conditional on the ITO sale, temporarily limits dividends and restricts repurchases to no more than $100 million depending on leverage.
Outlook, risks and contingencies
Management expected to maintain product investment in FY2016, principally in engineering and product management, capitalized software and new data sources. Total engineering investment was $38.9 million in FY2015, versus $48.1 million in FY2014. The filing provides no specific revenue or earnings guidance.
Management cited risks from privacy regulation and public scrutiny of data use, cybersecurity incidents, loss or reduced availability of third-party data, client and contract concentration, competition and technology changes, declining direct-mail activity, international operations and foreign exchange, and execution of acquisitions, divestitures and restructuring. Goodwill was approximately 43% of total assets; Australia MDS goodwill passed an interim impairment test but its estimated fair value had fallen significantly. ITO’s value was also vulnerable to further client losses.
A Fair Credit Reporting Act class action had a $3.7 million accrual; the court preliminarily approved a settlement, with final approval pending at the filing date. Management considered additional loss remote and did not expect the matter to materially affect consolidated results. The company also disclosed a $1.0 million maximum lease guarantee, $2.1 million in letters of credit and $138.8 million of future operating lease payments. Management and the auditor reported effective internal controls; LiveRamp was excluded from the internal-control assessment.
Important facts for investors to verify
- Confirm the intended issuer and period: this is Acxiom’s FY2015 10-K, not a Liveramp Holdings filing or a 2014 Q4-only report.
- Review the full statements and segment disclosures for the drivers of margin compression, corporate costs, and the sharp decline in operating cash flow.
- Assess LiveRamp’s post-acquisition revenue, losses, integration costs, goodwill and intangible-asset assumptions.
- Verify the ITO sale’s closing, contingent-payment conditions, proceeds allocation, gain and resulting covenant restrictions.
- Monitor goodwill valuation headroom, privacy and security developments, significant client retention, and final resolution of the class-action settlement.