RAMP

Business Context and Reporting Period

This Form 10-Q is filed by Acxiom Corporation (not Liveramp Holdings, Inc., as indicated in the metadata request) for the quarterly period ended December 31, 2000. Acxiom is a data management and information technology services company. The report covers the third quarter and the first nine months of fiscal year 2001.

Key Financial Metrics

Liquidity: Working capital increased to $203.7 million. The company has $296.5 million in available credit lines, with $156.8 million outstanding. The debt-to-capital ratio is 35% (24% if convertible debt is assumed to convert).

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenue increased 14% year-over-year for the quarter and 14% for the nine months. Excluding disposed operations (DMI and DataQuick), organic revenue growth was 27% for the quarter and 29% for the nine months.
• Segment Performance: The Services segment grew 17% (30% organic), Data Products grew 47% (74% organic), and IT Management grew 23%. Growth was driven by the AbiliTec software suite, which contributed over $26.0 million in Q3 revenue.
• Operating Expenses: Total operating costs rose 12% for the quarter. Salaries and benefits decreased 6% due to divestitures, while computer/equipment costs rose 32% due to infrastructure investments for AbiliTec and IT Management.
• Cash Flow: Operating cash flow turned negative ($14.3 million used) for the nine months compared to $54.4 million provided in the prior year. This was primarily due to a $123.7 million increase in other assets (largely notes receivable from AbiliTec sales) and a $36.2 million increase in accounts receivable.
• Non-Recurring Items: The nine-month period included a net gain of $3.1 million, comprising a $39.7 million gain on the sale of DataQuick, offset by a $20.0 million write-down of the DMI investment, a $7.2 million software write-off, and a $6.3 million accrual for over-attainment incentives.

Outlook, Risks, and Contingencies

• Montgomery Ward Bankruptcy: A significant customer, Montgomery Ward, LLC, filed for bankruptcy on December 28, 2000. Acxiom estimates a potential non-cash write-off between $25 million and $30 million, though the final amount is undetermined. The company expects to continue operating Ward's data center through at least Q1 fiscal 2002.
• Guidance:
  • Revenue growth for the remainder of fiscal 2001 is expected to be at least 25% (adjusted for divestitures).
  • AbiliTec revenue for fiscal 2001 is projected at $90 million to $125 million.
  • Fiscal 2001 EPS growth from continuing operations is expected to be 20% or higher.
  • Fiscal 2002 revenue and earnings growth is expected to be 25% or more.
  • Capital expenditures for fiscal 2001 are expected to be $100 million to $120 million.
• Accounting Changes: The company is evaluating the impact of SAB 101 (Revenue Recognition) and FAS 140 (Transfers of Financial Assets), with no material impact currently expected on financial position.
• Equity Forwards: The company holds equity forward purchase agreements for 3.7 million shares. The fair value of these contracts was $60.2 million as of December 31, 2000, fluctuating with the stock price.

Investor Verification Checklist

• Montgomery Ward Exposure: Verify the final determination of the write-off amount related to the Montgomery Ward bankruptcy and its impact on future earnings.
• AbiliTec Sustainability: Assess the sustainability of AbiliTec revenue growth and the associated high capital expenditures ($58.4 million invested in nine months).
• Cash Flow Conversion: Monitor the conversion of earnings to cash, specifically the collection of notes receivable from AbiliTec sales which currently depresses operating cash flow.
• Debt Structure: Review the $115 million convertible note due 2003 and the likelihood of conversion versus repayment given current stock prices.
• Legal Proceedings: Track the status of the shareholder class action lawsuit regarding the July 1999 public offering.