Filing identity and reporting period
Important issuer mismatch: The supplied filing is Acxiom Corporation’s Form 10-Q, not a filing by Liveramp Holdings, Inc. It covers the fiscal quarter ended December 31, 2016 (Acxiom fiscal Q3 2017) and the nine months then ended. LiveRamp is discussed as an Acxiom business. The financial statements are unaudited.
Business context
Acxiom described itself as a data, marketing technology, and services company, with Marketing Services, Audience Solutions, and Connectivity segments. Its Connectivity business included LiveRamp IdentityLink. In November 2016, Acxiom acquired Arbor Technologies and Circulate, adding to Connectivity and its identity network.
Financial performance
| Metric | Quarter ended Dec. 31, 2016 | Quarter ended Dec. 31, 2015 | Nine months ended Dec. 31, 2016 | Nine months ended Dec. 31, 2015 |
|---|---|---|---|---|
| Revenue | $223.3m | $221.2m | $655.4m | $625.4m |
| Gross profit / margin | $106.8m / 47.8% | $95.5m / 43.2% | $296.0m / 45.2% | $260.7m / 41.7% |
| Operating income (loss) | $9.1m | $(0.4)m | $24.4m | $(5.3)m |
| Continuing-operations net income (loss) | $1.1m | $(0.4)m | $12.2m | $(7.0)m |
| Diluted continuing-operations EPS | $0.01 | $(0.01) | $0.15 | $(0.09) |
| Cash from operations | Not stated separately for quarter | Not stated separately for quarter | $85.2m | $70.4m |
For the nine-month 2015 comparison, total net income was $8.3m because it included $15.2m of earnings from discontinued operations; the 2016 nine-month result had no discontinued-operations earnings. Quarterly 2015 net loss likewise included a $1.0m discontinued-operations loss.
Revenue by segment
Quarterly revenue changed as follows year over year: Marketing Services fell 13% to $101.2m; Audience Solutions rose 8% to $83.4m; and Connectivity rose 36% to $38.7m. Nine-month changes were down 6% to $316.6m, up 8% to $235.7m, and up 45% to $103.1m, respectively.
Liquidity, cash flow, and debt
At December 31, 2016, cash and cash equivalents were $137.9m, down from $189.6m at March 31, 2016. Working capital was $109.9m, versus $152.0m at March 31. Nine-month operating cash flow was $85.2m; investing used $162.1m, chiefly reflecting $137.4m net cash paid for acquisitions; financing provided $26.7m. The resulting net decrease in cash was $51.8m. Capital expenditures were $30.1m and capitalized software costs were $11.2m.
Debt and capital leases totaled $238.7m, including $162.5m of term loans and $70.0m of revolving borrowings; cash less this reported total was approximately $100.8m of net debt. The revolver draw funded the acquisitions. The company reported compliance with debt covenants. It stated that available debt and operating cash flow should meet foreseeable working-capital and capital-expenditure needs.
Material changes and notable items
- Gross margin improved as Audience Solutions and Connectivity grew and management cited cost efficiencies. Operating expenses rose 2% in the quarter and nine-month period; sales and marketing spending increased, while general and administrative expenses declined.
- Arbor and Circulate were acquired for approximately $137.4m net of acquired cash. Preliminary purchase accounting included $104.4m of goodwill and $41.8m of acquired intangible assets. The fair-value analysis was incomplete at quarter-end. Acquisition-related costs were $1.4m for the nine months. Pro forma results, as if the acquisitions had occurred earlier, showed net losses of $4.1m for the nine months ended December 31, 2016.
- Acxiom sold its Impact email business in August 2016 for $22.0m, including a $4.0m subordinated note, and recorded a $0.8m gain and a $4.1m tax benefit. The business did not qualify as discontinued operations.
- The company repurchased 1.3m shares for $30.5m during the nine months. Remaining authorization at December 31 was $114.3m under a program expiring June 30, 2018.
- Stock-based compensation was $34.0m for the nine months, compared with $23.5m a year earlier. The filing also reports $77.8m of future operating lease payments and $79.8m of purchase commitments.
Outlook, risks, and contingencies
No specific revenue, earnings, or margin guidance is provided. Management said liquidity and capital resources should be sufficient for operations, while cautioning that results are subject to business and market uncertainties. Risks discussed include data privacy, security breaches or service interruptions, changes in data regulation, loss of data suppliers or customers, competition, acquisition integration, foreign-exchange exposure, and access to credit. Management noted that some digital-data revenue-sharing arrangements may shift to license arrangements or be lost, potentially affecting Audience Solutions growth.
Acxiom reported no pending legal matters considered material to its financial statements and said it had adequate accruals, while acknowledging uncertain ultimate outcomes. Lease guarantees had maximum potential payments of approximately $3.0m. The company had no foreign-currency hedges. Management assessed disclosure controls as effective at December 31, 2016.
Key facts for investors to verify
- Confirm the intended issuer: this filing is for Acxiom Corporation, not Liveramp Holdings, Inc.
- Assess whether Connectivity growth can continue and whether it can offset declines in Marketing Services and customer losses affecting revenue-sharing arrangements.
- Review acquisition integration, final purchase-price allocations, goodwill, and the acquired businesses’ contribution to earnings and cash flow.
- Reconcile cash use, acquisition funding, debt maturities, covenant terms, and the company’s stated liquidity outlook.
- Evaluate the durability of margin improvement alongside higher sales and marketing costs and increased stock-based compensation.